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6 November 2015 last updated
Annuity rates lower as yields up on Fed interest rate rise hopes
15-year gilt yields chart
Based on figures for October 2015
15-year gilt yields October 2015

Providers have reduced their annuity rates in October just as yields increase following hints from the US Federal Reserve that interest rates could increase in December.

Standard rates:  
annuity rates up 0.71%
Enhanced rates:  
annuity rates up 0.87%
Gilt yields:  
annuity rates up 13 basis point

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Providers send impaired annuities lower

Providers of standard, smoker and impaired annuities have reduced rates during the month of October by up to 2.1%.

Towards the end of the month the 15-year gilt yields were up after the US Federal Reserve hinted they may finally raise interest rates in december. For the month yields were 13 basis points up and annuity rates are now expected to increase if investors hopes of higher US interest rates can be fulfilled.

Standard providers lowered rates by 0.71% and we would expect to see a annuities higher by 2.01% in the short term and in the medium term of 3 months annuity rates will increase by 0.85% if yields do not improve further.

Smoker and enhanced annuity providers decreased their rates by 0.87% on average with an increase of 2.17% possible in the short term and in the medium term of 3 months we can expect an increase of 2.87%.

Equity markets started at 6,062 and increased by 299 points to end at 6,361

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   6%
annuity rates no change   14%
annuity rates decrease   80%
Increases of:
up to 1.1%

  Decreases of:
up to 2.1%
  Fig 1: Annuity rate changes for the whole market

The majority of rates increased with 6% rising, 80% remaining unchanged and 14% 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 all reduced with the largest for escalating and joint life rates by 1.0% on average. The highest fall was up to 1.4% for those aged 65 on a single life with 10 year guaranteed period and level basis.

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 providers rates mainly decreased with the highest of 2.1% for those aged 75 on a single life basis level basis although there was a small increase for 100% joint life rates for those aged 65 to 70.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 2.10% to 2.23% or 13 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 - October 2015
      Thurs 1st Fri 2nd
gilt yields down   0.02
gilt yields down   0.02
Mon 5th Tues 6th Wed 7th Thurs 8th Fri 9th
gilt yields up   0.08
gilt yields no change
gilt yields up   0.03
gilt yields no change
gilt yields up   0.03
Mon 12th Tues 13th Wed 14th Thurs 15th Fri 16th
gilt yields down   0.03
gilt yields no change
gilt yields down   0.05
gilt yields no change
gilt yields up   0.02
Mon 19th Tues 20th Wed 21st Thurs 22nd Fri 23rd
gilt yields up   0.04
gilt yields up   0.02
gilt yields down   0.05
gilt yields no change
gilt yields up   0.06
Mon 26th Tues 27th Wed 28th Thurs 29th Fri 30th
gilt yields down   0.04
gilt yields down   0.06
gilt yields up   0.05
gilt yields up   0.09
gilt yields down   0.02
  Fig 2: Daily 15-year gilt yields and changes

News related stories:
Gilt yields and equities fall as Federal Reserve unclear about rate rise
Best annuities could rise as Federal Reserve delays raising rates
UK annuities could rise as gilt yields make strong recovery
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