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2 October 2015 last updated
Impaired annuities fall as US interest rate unchanged sending yields lower
15-year gilt yields chart
Based on figures for September 2015
15-year gilt yields September 2015

The 15-year gilt yields reduced 18 basis points with impaired annuities 3.6% lower as the Federal Reserve decided against increasing US interest rates due to economic uncertainty.

Standard rates:  
annuity rates up 0.64%
Enhanced rates:  
annuity rates up 1.59%
Gilt yields:  
annuity rates up 18 basis point

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Providers send impaired annuities lower

Impaired annuity providers have decreased annuity rates by up to 3.6% following a fall in the 15-year gilt yields which were lower by 18 basis points. Generally a fall of 18 basis points would result in a 1.8% decrease in annuity rates so providers of impaired annuities have been agressive.

Investors had anticipated a rise in US interest rates by the Federal Reserve, however, these have remained at their record low level of zero percent resulting in a fall in yields to 2.10% for the month.

Standard providers lowered rates by 0.64% and we would expect to see a annuities lower by 1.16% in the short term and in the medium term of 3 months annuity rates will decrease by 3.84% if yields do not improve further.

Smoker and enhanced annuity providers decreased their rates by 1.59% on average with a decrease of 0.21% possible in the short term and in the medium term of 3 months we can expect a decrease of 0.30%.

Equity markets started at 6,248 and decreased by 186 points to end at 6,062.

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   9%
annuity rates no change   70%
annuity rates decrease   21%
Increases of:
up to 1.8%

  Decreases of:
up to 3.6%
  Fig 1: Annuity rate changes for the whole market

The majority of rates increased with 9% rising, 70% remaining unchanged and 21% 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 mainly decreased with the largest for those aged 55. The falls were between 2.08% to 3.68% for both single and joint life annuities. The only increases were for those aged 65 on a joint life basis higher by 1.82% for the month.

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 decreased across the board with the largest decrease of 3.11% for thosed aged 75 on a single life basis.

The fall has exceeded the reduction in yields for single life annuities which suggests these rates may increase if yields remain where they are or increase. For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 2.28% to 2.10% or 0 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 - September 2015
  Tues 1st Wed 2nd Thurs 3rd Fri 4th
gilt yields down   0.03
gilt yields down   0.01
gilt yields down   0.02
gilt yields down   0.10
Mon 7th Tues 8th Wed 9th Thurs 10th Fri 11th
gilt yields down   0.02
gilt yields up   0.05
gilt yields up   0.02
gilt yields up   0.01
gilt yields down   0.03
Mon 14th Tues 15th Wed 16th Thurs 17th Fri 18th
gilt yields up   0.02
gilt yields up   0.05
gilt yields up   0.03
gilt yields up   0.02
gilt yields down   0.09
Mon 21st Tues 22nd Wed 23rd Thurs 24th Fri 25th
gilt yields up   0.05
gilt yields down   0.11
gilt yields up   0.02
gilt yields down   0.05
gilt yields up   0.08
Mon 28th Tues 29th Wed 30th    
gilt yields down   0.05
gilt yields down   0.03
gilt yields up   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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  70 £6,272 £5,976  
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