EU rules could push up cost of retirement

PENSIONERS could face a reduction in income of up to 20 per cent if new European Union rules on capital requirements are implemented, according to accountancy firm Deloitte.

The Solvency II reforms are set to shake-up the continent’s insurance business by setting common standards and increasing capital requirements.

But this could have the side effect of forcing annuity providers to hold significantly more reserves, causing them to switch from investing in corporate bonds to lower-yielding assets such as government debt.

Research by Deloitte suggests that in the best case scenario this would reduce annuity rates by five per cent, but it might lead to a fall of up to 20 per cent, depending on the outcome of ongoing EU negotiations.

For a pensioner with a £100,000 pension fund, these changes could reduce their income by between £300 and £1,100 a year.

“The amount that annuity rates will fall by depends on whether there is a favourable outcome to negotiations,” said Deloitte’s Richard Baddon. “Whatever the outcome, it is likely that insurance companies will need to charge more in future for annuities.”