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Deliotte: Solvency II could harm annuity rates

21 June 2012

Individuals looking to purchase an annuity to boost their retirement income may need to do so quickly if they are to avoid changes being made as a result of the Solvency II rules.

According to a new report on the matter released by business advisory body Deloitte, there is a chance annuity rates could be badly affected by its arrival in the market.

The rules have been designed to align the treatment of insurance across Europe, but Deloitte claims they could result in annuity rates dropping by as much as 20 per cent, although the reduction may be as small as five per cent.

Negotiations ongoing

Richard Baddon, insurance partner at Deloitte, stated there has been a lot of technical debate and negotiation with the EU regarding the impact of the Solvency II introduction.

"A focus for the UK has been the treatment of the 'Matching Adjustment', which affects annuities and the way insurers set reserves and calculate capital," he said, adding any effect on annuity rates is going to depend on whether there is a "favourable outcome to negotiations around the Matching Adjustment".

But it was noted by Mr Baddon that regardless of the result of the talks in this area, it is expected annuity providers are going to charge more for the products in the near future.


Annuities may still be the best purchase for some people, depending on their financial position. Tom McPhail, head of pensions research at Hargreaves Lansdown, recently told the Daily Telegraph that the flexibility of these products is one of the main advantages and a reason why so many elect to buy them every year.

Those who want to investigate their options for their retirement further may find it useful to take advantage of the annuities service from Key, which may help them to come to a decision about their finances.

Page last updated: Monday 12 August 2019