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2 October 2014 last updated
Providers increase annuities with bounce back in yields
15-year gilt yields chart
Based on figures for September 2014
15-year gilt yields September 2014

Annuities have been increased by providers following a bounce back from 15-year gilt yields although concern over US interest rates reduced equity markets and yields towards the end of the month.

Standard rates:  
annuity rates up 0.98%
Enhanced rates:  
annuity rates up 0.53%
Gilt yields:  
annuity rates up 8 basis point

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Markets volatile due to recovery fears

Equity markets have been volatile over recovery fears in the US and Europe which is affecting gilt yields. This has resulted with only a modest increase in the 15-year gilt yields of 8 basis points to end at 2.78%.

Standard providers increased their rates on average by 0.98% and we would expect so see a slight decrease of 0.18% in the short term and in the medium term of 3 months annuity rates will decrease by 2.18%.

Smoker and enhanced annuity providers increased their rates by 0.53% on average with an increase of 0.27% possible in the short term and in the medium term of 3 months we can expect a decrease of 2.37%.

Equity markets started at 6,820 and increased by 198 points to end at 6,622. This represents a 2.9% rise and for people that remain invested will still see a fall in their annuity income as the fall in rates surpassed this figure.

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   80%
annuity rates no change   4%
annuity rates decrease   16%
Increases of:
up to 7.5%

  Decreases of:
up to 1.5%
  Fig 1: Annuity rate changes for the whole market

The majority of annuity rates have increased with 80% rising, 4% remaining unchanged and 16% decreasing. Certain annuities have increased by up to 7.5% correcting anomalies in the market as Hodge Life reduced rates several times and other providers were uncompetitive at that time. Virtually all annuities for enhanced and smoker rates increased by modest amounts up to 0.75%.

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 mainly increased with those aged 70 with single and joint life 3% escalating rates rising by 7.5%. There were a number of decreases for younger 3% escalating rates aged 55 to 60 both single and joint were also modest decreases for single life rates from aged 65 to 75 of 0.2% and 0.65%.

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 there were increases across the board by modest amounts of 0.30% to 0.75%. The only decrease was 100% joint life aged 60 to 65 by 0.75% to 0.90%. 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 - September 2014
Mon 1st Tues 2nd Wed 3rd Thurs 4th Fri 5th
gilt yields up   0.01
gilt yields up   0.06
gilt yields up   0.03
gilt yields up   0.03
gilt yields down   0.01
Mon 8th Tues 9th Wed 10th Thurs 11th Fri 12th
gilt yields up   0.01
gilt yields up   0.01
gilt yields up   0.03
gilt yields down   0.01
gilt yields up   0.03
Mon 15th Tues 16th Wed 17th Thurs 18th Fri 19th
gilt yields up   0.01
gilt yields down   0.01
gilt yields down   0.02
gilt yields up   0.06
gilt yields down   0.05
Mon 22nd Tues 23rd Wed 24th Thurs 25th Fri 26th
gilt yields down   0.04
gilt yields down   0.02
gilt yields down   0.01
gilt yields down   0.01
gilt yields up   0.01
Mon 29th Tues 30th      
gilt yields down   0.02
gilt yields down   0.01
  Fig 2: Daily 15-year gilt yields and changes

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  Age Single Joint  
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  60 £6,842 £6,244  
  65 £7,474 £6,843  
  70 £8,405 £7,660  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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