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5 December 2014 last updated
Annuity rates reduce as Eurozone expected to start stimulus programme
15-year gilt yields chart
Based on figures for November 2014
15-year gilt yields September 2014

Investors expecting the Eurozone to start a €1 trillion stimulus programme send gilt yields 31 basis points lower with impaired annuity rates falling by 2.2% although standard rates resist.

Standard rates:  
annuity rates down 0.69%
Enhanced rates:  
annuity rates down 0.54%
Gilt yields:  
annuity rates down 31 basis point

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Eurozone stimulus sends annuities lower

As gilt yields fall 31 basis points providers of impaired annuity rates see falls of up to 2.2%. The increasing pressure of deflation on the Eurozone has prompted the European Central bank (ECB) to plan for a €1 trillion of quantitative easing.

Standard annuity providers have resisted the sudden fall in yields although it is likely they will follow if yields do not recover. Providers have reduced rates by an
average by 0.69% and we would expect a further decrease of 2.41% in the short term and in the medium term of 3 months annuity rates will decrease by 2.46%.

Smoker and enhanced annuity providers decrease their rates by 0.54% on average with a further decrease of 2.56% possible in the short term and in the medium term of 3 months we can expect a decrease of 1.74%.

Equity markets started at 6,546 and increased by 176 points to end at 6,722. This represents a 2.6% increase and for people that remain invested will still see the gain partially offset by a fall in their annuity income.

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   18%
annuity rates no change   22%
annuity rates decrease   60%
Increases of:
up to 3.8%

  Decreases of:
up to 8.1%
  Fig 1: Annuity rate changes for the whole market

Many of the annuity rates decreased with a surprising 18% actually improving, 22% remaining unchanged and 60% 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

Overall the standard rates have decreased but no where near to the fall in yields suggesting further falls are likely in the next month. For people aged 65 on a 100% joint life rates reduced by 8.1% in contrast to those aged 75 on a 50% joint life with 3% escalation where rates improved by 3.8%.

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 most decreased during the month by modest amounts. There were some significant changes with those aged 75 on a 50% joint life reducing by 4.8% and those on a 50% joint life with 3% escalation reducing by 6.5%. For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 2.66% to 2.35% or 31 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 - November 2014
Mon 3rd Tues 4th Wed 5th Thurs 6th Fri 7th
gilt yields up   0.01
gilt yields down   0.04
gilt yields up   0.02
gilt yields down   0.01
gilt yields down   0.03
Mon 10th Tues 11th Wed 12th Thurs 13th Fri 14th
gilt yields down   0.01
gilt yields up   0.03
gilt yields down   0.03
gilt yields no change
gilt yields down   0.04
Mon 17th Tues 18th Wed 19th Thurs 20th Fri 21st
gilt yields down   0.01
gilt yields up   0.01
gilt yields up   0.01
gilt yields down   0.04
gilt yields down   0.04
Mon 24th Tues 25th Wed 26th Thurs 27th Fri 28th
gilt yields down   0.01
gilt yields down   0.05
gilt yields down   0.03
gilt yields down   0.05
gilt yields no change
  Fig 2: Daily 15-year gilt yields and changes

News related stories:
Annuities to fall when the ECB's €1 trillion stimulus plan starts
Pension annuities remain unchanged as Fed stimulus is ended
Annuity Rates
  Age Single Joint  
  55 £5,025 £4,644  
  60 £5,501 £5,102  
  65 £6,168 £5,832  
  70 £7,003 £6,583  
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Unisex rates and joint life basis
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