Mixed annuities rates react to market volatility

The 15-year gilt yields have increased by 1 basis point after a stable month with a narrow range. As a general rule a 1 basis point rise would result in a 0.1% rise in annuity rates.

The Federal Reserve pledged to continue with the stimulus package giving markets confidence that there would not be a sudden change in policy.

Equity markets started at 6,510 and increased 300 points to end at 6,810. This represents a 4.60% rise and for people that remain invested have seen their fund increase in value to counter the fall in standard annuity rates.

Standard providers decreased their rates by 0.31% and we would expect so see an increase of about 0.41% in the short term but in the medium term of 3 months they can increase by 1.54%.

Smoker and enhanced annuity providers increased their rates by 0.83% on average and a decrease of 0.73% is possible in the short term but in the medium term of 3 months the decrease is less at 2.33%.

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   62%   11%   27% Increases of: 0.3% - 1.6%   Decreases of: 0.2%-2.6%

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

Impaired providers have increase their rates and are being more aggressive with winning business. See Annuity Rates Review For the latest updates.

Changes to the 15-year gilt yields

The US Federal Reserve has reassured investors that there will not be any sudden change in the stimulus policy and that there will be a steady decline over time.

The stimulus has reduced to $75 billion with a further $10 billion this month to $65 billion and will continue future reductions based on the improvement in the US economy.

For February the yields range for the month was from 3.13% to 3.26% or 13 basis points which is one of the lowest ranges compared to previous months. 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 - February 2014 Mon 3rd Tues 4th Wed 5th Thurs 6th Fri 7th 3.14%   0.02 3.15%   0.01 3.14%   0.01 3.19%   0.05 3.17%   0.02 Mon 10th Tues 11th Wed 12th Thurs 13th Fri 14th 3.18%   0.01 3.19%   0.01 3.26%   0.07 3.22%   0.04 3.22% Mon 17th Tues 18th Wed 19th Thurs 20th Fri 21st 3.21%   0.01 3.20%   0.01 3.18%   0.02 3.24%   0.06 3.22%   0.02 Mon 24th Tues 25th Wed 26th Thurs 27th Fri 28th 3.21%   0.01 3.19%   0.02 3.17%   0.02 3.13%   0.04 3.17%   0.04

Fig 2: Daily 15-year gilt yields and changes

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