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EU Rules Could Cut Annuity Rates
Pensioners could receive less income when they buy an annuity with their pension savings after new EU rules come into force.
The proposed "Solvency 2" rules, which have yet to be finalised but could come into force as early as 2012, would give insurers less flexibility in valuing their assets.
Some reports have suggested that the income pensioners receive from their annuities could be cut by as much as a fifth under the rules, which are likely to force insurers to hold more capital in reserve. Companies that sell annuities often use corporate bonds to provide the income needed, but in time of crisis the market for these assets can dry up, making fair valuation impossible.
Having to hold more capital could lead insurers to reduce the annuity rates they pay.
