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7 November 2014 last updated
Annuities fall as economic fears send markets and yields lower
15-year gilt yields chart
Based on figures for October 2014
15-year gilt yields September 2014
 

Annuities fall after economic fears send equity markets and 15-year gilt yields lower by 30 basis points before recovering and minimising the downturn however annuity providers have made greater decreases with their rates.

Standard rates:  
annuity rates down 1.31%
Enhanced rates:  
annuity rates down 1.75%
Gilt yields:  
annuity rates down 12 basis point



 
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Economic fears send yields 30 basis points lower

The UK FTSE-100 index reduced 464 points to 6,388 after investor concern over economic growth in the US, Europe and other countries. Poor economic data from the US with falling demand started the sell-off in equities.

Other news of Greece exiting their bailout programme, China's weaker than expected inflation data and Germany in economic slowdown all contributed to the falls. This sent the 15-year gilt yields 30 basis points lower for the month before recovering with a bounce back of less threatening economic news in the following weeks.

Standard providers fell on average by 1.31% and we would expect to see an increase of 0.11% in the short term and in the medium term of 3 months annuity rates will decrease by 1.26%.

Smoker and enhanced annuity providers decrease their rates by 1.75% on average with an increase of 0.55% possible in the short term and in the medium term of 3 months we can expect a decrease of 0.90%.

Equity markets started at 6,622 and decreased by 76 points to end at 6,546. This represents a 1.1% fall and for people that remain invested will still see a fall in their annuity income with the combined fall in rates.

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   6%
annuity rates no change   2%
annuity rates decrease   92%
Increases of:
up to 4.6%

  Decreases of:
up to 5.4%
  Fig 1: Annuity rate changes for the whole market

The majority of annuity rates decreased with only 6% rising, 2% remaining unchanged and 92% 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 have virtually all decreased with those aged 70 on a joint life basis falling by up to 5.4%. There were a number of increases for joint life annuities aged 55 to 60 of up to 4.6% but these were rare events.

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 all decreased during the month by up to 3.3%.Providers were more aggressive at decreasing their rates with an average of 1.75% exceeding the change in yields of 1.2%. For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 2.70% to 2.78% or 8 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 - October 2014
    Wed 1st Thurs 2nd Fri 3rd
   
2.73%
gilt yields down   0.05
2.71%
gilt yields down   0.02
2.76%
gilt yields up   0.05
Mon 6th Tues 7th Wed 8th Thurs 9th Fri 10th
2.73%
gilt yields down   0.03
2.67%
gilt yields down   0.06
2.64%
gilt yields down   0.03
2.64%
gilt yields no change
2.65%
gilt yields up   0.01
Mon 13th Tues 14th Wed 15th Thurs 16th Fri 17th
2.57%
gilt yields down   0.07
2.54%
gilt yields down   0.03
2.42%
gilt yields down   0.12
2.49%
gilt yields up   0.07
2.59%
gilt yields up   0.10
Mon 20th Tues 21st Wed 22nd Thurs 23rd Fri 24th
2.56%
gilt yields down   0.03
2.58%
gilt yields up   0.02
2.60%
gilt yields up   0.02
2.63%
gilt yields up   0.03
2.63%
gilt yields no change
Mon 27th Tues 28th Wed 29th Thurs 30th Fri 31st
2.62%
gilt yields down   0.01
2.64%
gilt yields up   0.02
2.66%
gilt yields up   0.02
2.64%
gilt yields down   0.02
2.66%
gilt yields up   0.02
  Fig 2: Daily 15-year gilt yields and changes

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