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4 December 2013 last updated
Annuity rates rise with better economic data and improving gilt yields
15-year gilt yields chart
Based on figures for November 2013
15-year gilt yields November 2013
 

Standard annuity rates improved during the month with mixed results from enhanced and smoker rates after better than expected economic data in the UK and US and rising gilt yields suggest tapering of US stimulus is likely in the next two months.

Standard rates:  
annuity rates up 1.47%
Enhanced rates:  
annuity rates up 0.53%
Gilt yields:  
annuity rates up 17 basis points



 
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Annuities improve as gilt yields rise

15-year gilt yields ended the month 17 basis points higher at 3.21% and as a rough guide a 17 basis point rise would see annuity rates increase by 1.7% and standard annuity providers have been the first to reach to the change.

Standard providers increased their rates by 1.47% and we would expect so see a further improvement of about 0.23%. In contrast enhanced and smoker annuity providers have been slow to react with increases of only 0.53% on average and a further 1.17% is possible.

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   83%
annuity rates no change   0%
annuity rates decrease   17%
Increases of:
0.1% - 3.4%

  Decreases of:
0.3%-2.0%
  Fig 1: Annuity rate changes for the whole market

A large number of rates did increase and in particular from standard providers with strong improvements of up to 3.4%. All rates changed although most of the 17% decreases were from enhanced and smoker rates.

For the increases standard single life annuitants aged 60 to 65 experienced the largest rises of over 3.0% with other ages seeing a 1.0% rise. As an example the largest monetary rise was for single lives aged 65 and with a fund of £100,000 buying a level annuity the income has increased by £187 pa to £6,196 pa.

Enhanced and smoker rates experienced small rises across the board of under 1.0% and some decreases for those aged 70 to 75.

Equity markets started at 6,731 and decreased 80 points to end at 6,651. This represents a 1.1% fall and for people that remain invested have seen their fund fall in value which would counter the rise in pension annuity rates.

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 increased as the 15-year gilt yields improved although some annuities for 50% joint life fell slightly for those aged between 70 and 75.

What happened to enhanced rates

Lifestyle smoker and enhanced annuities have decreased in line with the fall in gilt yields and in particular for joint life rates.

Enhanced annuity 1 month changes
Fig 3: Change in enhanced rates last month compared to gilt yields

For enhanced and smoker annuity rates there were increases but generally less than 1.0% with decreases for those aged between 70 and 75.

All the leading impaired providers have reduced their rates at the end of November and we are seeing significant changes in rates for certain medical conditions as the providers optimise business towards the end of the year. See Annuity Rates Review For the latest updates.

Changes to the 15-year gilt yields

There has been an improvement in the gilt yields after better than expected economic data from the US after debt ceiling crisis seemed to have a negligible effect. This means the $85 billion a month stimulus package is more likely to be tapered than expected resulting with investors moving funds away from bonds and gilts and therefore increasing yields.

For November the yields range for the month was from 3.04% to 3.26% or 22 basis points which is similar to the previous months with standard annuities being well balanced with yields although smoker and enhanced rates are lagging behind. 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 2013
        Fri 1st
       
3.07%
gilt yields up   0.03
Mon 4th Tues 5th Wed 6th Thurs 7th Fri 8th
3.06%
gilt yields down   0.01
3.14%
gilt yields up   0.08
3.14%
gilt yields no change
3.11%
gilt yields down   0.03
3.20%
gilt yields up   0.09
Mon 11th Tues 12th Wed 13th Thurs 14th Fri 15th
3.22%
gilt yields up   0.02
3.22%
gilt yields no change
3.22%
gilt yields no change
3.19%
gilt yields down   0.03
3.17%
gilt yields down   0.02
Mon 18th Tues 19th Wed 20th Thurs 21st Fri 22nd
3.15%
gilt yields down   0.02
3.15%
gilt yields no change
3.16%
gilt yields up   0.01
3.26%
gilt yields up   0.10
3.23%
gilt yields down   0.03
Mon 25th Tues 26th Wed 27th Thurs 28th Fri 29th
3.20%
gilt yields down   0.03
3.17%
gilt yields down   0.03
3.20%
gilt yields up   0.03
3.19%
gilt yields down   0.01
3.21%
gilt yields up   0.02
  Fig 2: Daily 15-year gilt yields and changes

News related stories:
Best annuities to benefit if US Federal Reserve tapers stimulus
UK annuities could rise as market expects Fed to taper stimulus
UK annuity rates under pressure as yields fall after poor US jobs data
Pension annuities to recover as US debt ceiling deal is agreed

Annuity Rates
  Age Single Joint  
  55 £4,216 £3,974  
  60 £4,702 £4,423  
  65 £5,453 £5,013  
  70 £6,105 £5,482  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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