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7 April 2015 last updated
Enhanced annuity rates fall further than expected in volatile market
15-year gilt yields chart
Based on figures for March 2015
15-year gilt yields March 2015

Enhanced annuity providers have decreased their rates further than expected in a volatile gilts market although people retiring with their pension fund invested have benefited from high equities.

Standard rates:  
annuity rates up 0.03%
Enhanced rates:  
annuity rates down 2.67%
Gilt yields:  
annuity rates down 19 basis point

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FTSE-100 index reaches a new high

People retiring that remain invested before taking their benefits have seen their pension funds increase in vale as the FTSE-100 index reaches a new high of 7,037 during the month after starting the year at 6,566.

This has countered the recent volatility in gilt yields and annuity rates which are near their all time lows.

Standard providers were up slightly by an average of 0.03% and we would expect to see decrease of 1.83% in the short term and in the medium term of 3 months annuity rates will increase by 2.33%.

Smoker and enhanced annuity providers decrease their rates by 2.67% on average with an increase of 0.87% possible in the short term and in the medium term of 3 months we can expect an increase of 5.47%.

Equity markets started at 6,947 and decreased by 92 points to end at 6,855.

Fig 1 below shows the annuity rates changes for the whole market and the proportion that have either increased, decreased or or did not change. It also shows the range of the changes of the annuity rates over the last month:

Annuity Rates Changes
Increase No change Decrease
annuity rates increase   11%
annuity rates no change   26%
annuity rates decrease   63%
Increases of:
up to 2.1%

  Decreases of:
up to 5.8%
  Fig 1: Annuity rate changes for the whole market

All annuity rates decreased with 11% rising, 26% remaining unchanged and 63% decreasing.

What happened to standard rates

Below shows a fund of £100,000 with the change in standard annuity rates for single and joint pensioners from age 55 to 75 with different annuity options such as level or escalating over 1 month compared to gilt yields:

Standard annuity 1 month changes
Fig 2: Change in standard rates last month compared to gilt yields

Standard annuities were mixed this month with 50% joint life rates increasing by up to 2.1% for those aged 55 and other ages by about 1.0%. Single life rates decreased but by no more than 1.0%.

What happened to enhanced rates

Lifestyle smoker and enhanced annuities have decreased significantly across the board for all types of annuities and ages.

Enhanced annuity 1 month changes
Fig 3: Change in enhanced rates last month compared to gilt yields

For enhanced and smoker rates all decreased during the month with the highest fall of 5.8% for 50% joint life aged 55 and other high falls of 5.1% for single life including level and 3% escalating rates. The majority of all rates have reduced by between 1.5% to 4.0% and none have remained the same or increased.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 2.15% to 1.96% or 19 basis points. Fig 2 below shows the daily 15-year gilt yields and the increase or decrease from the previous day's close:

15-Year Gilt Yields - March 2015
Mon 2nd Tues 3rd Wed 4th Thurs 5th Fri 6th
gilt yields up   0.01
gilt yields up   0.08
gilt yields up   0.02
gilt yields down   0.02
gilt yields up   0.09
Mon 9th Tues 10th Wed 11th Thurs 12th Fri 13th
gilt yields down   0.01
gilt yields down   0.11
gilt yields down   0.04
gilt yields up   0.03
gilt yields down   0.07
Mon 16th Tues 17th Wed 18th Thurs 19th Fri 20th
gilt yields down   0.03
gilt yields down   0.01
gilt yields down   0.08
gilt yields down   0.11
gilt yields no change
Mon 23th Tues 24th Wed 25th Thurs 26th Fri 27th
gilt yields no change
gilt yields down   0.03
gilt yields up   0.01
gilt yields up   0.08
gilt yields down   0.05
Mon 30th Tues 31st      
gilt yields up   0.04
gilt yields no change
  Fig 2: Daily 15-year gilt yields and changes

News related stories:
Pension income higher as FTSE-100 index reaches all time high
Budget 2015 changes allow annuities to be sold by retired savers
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  Age Single Joint  
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  60 £4,783 £4,292  
  65 £5,456 £4,877  
  70 £6,270 £5,588  
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