Thursday, 14th December 2017
Social media Waterford Today on Twitter Waterford Today on Facebook

John Smiles

Qualified Financial Advisor

Government Bond Yields and Pensions

Anyone with a personal or defined contribution pension requesting retirement benefits will discover unless they have a valuable guaranteed annuity locked in, they will be offered a smaller pension at retirement than previously.

There are two reasons for this – annuity rates and longevity.

Annuity rates are the rate a pension provider offers a guaranteed income for life in exchange for a lump sum. Current annuity rates for a female taking retirement benefits at age 60, is 3.34%. So that female with a pension fund of €100,000, taking their retirement benefits now, will receive a guaranteed pension for life of €3,340 pa. Once accepted by an annuitant [pensioner] the annuity rate is guaranteed for life and cannot subsequently be reduced or cancelled. Therefore, pension providers need to have a balancing source of future guaranteed income and it comes in the form of Government bonds.

Since the economic collapse of 2008, deposit interest rates and government bond yields have been at historically low levels. Safe haven bonds from Germany have been negative which means the pension provider gets a negative return on their money.

Longevity is how long people live. When setting annuity rates, a pension provider needs to know how long a person might live or how soon they might die. Mortality tables measure this across populations. In Ireland, figures from the Central Statistics Office on 8 July 2015, tells us that the average male aged 65 can expect to live for another 17.7 years and the corresponding figure for females is 20.6 years. In general, the older you are when you purchase an annuity, the better the rate you should be quoted as your life expectancy falls.

To put it in context, a pension provider, looking at a pension fund from our 60-year old female above has to consider the following:

How much will I earn on this money?

Bond yields suggest it’s less than 1% pa.

What is her potential life span?

The tables tell us it is 24.96 years?

This is the average and for every person who will die sooner, one person will live longer.


Letters to the Editor


    Perfidious AlbionThe recent statement by the UK’s Brexit Minister responsible for their leaving the European Union David Davis really threw a spanner in the political works last week. His remark that the joint text agreed between the UK and the EU concerning a soft Brexit for Ireland was more a statement of intent rather than the legal enforceable international agreement between both parties caused consternation in Europe and Ireland.Ireland’s Minister for Foreign Affairs Simon Coveney was quick to …

    read more »

Weekly Poll

wso shell url tara mass alexa sorgula base64 decode hacklink satış wordpress themes youtube mp3 download eskişehir escort escort eskişehir