Annuity rates lower by over 2% for the month

Solvency 2 legislation introduced from 1 January 2016 has seen providers reduce annuity rates for the month of December by over 2.0% leaving some scope for increases if gilt yields do not decrease in 2016.

15-year gilt yields increased by 12 basis points in a volatile month as the Federal Reserve increases interest rates by 0.25% after the record low of 0%.

Standard providers lowered rates by 2.18% and we would expect to see annuities rise by a further 3.37% in the long term. Smoker and enhanced annuity providers decreased their rates by 2.19% on average and in the long term rates may rise by 3.39%.


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   14%   0%   85% Increases of: up to 3.2%   Decreases of: up to 5.1%

Fig 1: Annuity rate changes for the whole market

Fig 2: Change in standard rates last month compared to gilt yields

Fig 3: Change in enhanced rates last month compared to gilt yields

15-Year Gilt Yields - December 2015   Tues 1st Wed 2nd Thurs 3rd Fri 4th   2.11%   0.06 2.10%   0.01 2.22%   0.12 2.24%   0.02 Mon 7th Tues 8th Wed 9th Thurs 10th Fri 11th 2.13%   0.11 2.13% 2.20%   0.07 2.18%   0.02 2.14%   0.04 Mon 14th Tues 15th Wed 16th Thurs 17th Fri 18th 2.18%   0.04 2.28%   0.10 2.30%   0.02 2.21%   0.09 2.18%   0.03 Mon 21st Tues 22nd Wed 23rd Thurs 24th Fri 25th 2.16%   0.02 2.22%   0.06 2.28%   0.06 2.26%   0.02   Mon 28th Tue 29th Wed 30th Thur 31st     2.24%   0.02 2.31%   0.07 2.29%   0.02

Fig 2: Daily 15-year gilt yields and changes