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30 April 2013 last updated
Annuity Rates - April 2013

Smoker and impaired annuity rates reduce the most along with standard escalating annuities as gilt yields fall after poor US job data and fears over the eurozone.

Standard rates:  
annuity rates down 0.33%
Enhanced rates:  
annuity rates down 0.02%

Smoker and impaired annuity rates have been reduced by up to 2.1% with standard escalating annuities reduced by up to 3.2%.

There were some improvements with standard level rate increases of up to 1.5% with smoker and enhanced rates for those aged 55 higher by up to 7.6%.

This suggests that providers were optimising their market while gilt yields remain volatile and targeting areas that are more attractive for their business model resulting in the current lack of direction for annuities in general.

 
Annuity Rates Review April 2013
 
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Annuity rates will decreased by providers

With the 15-year gilt yields decreasing 11 basis points we would expect to see a 1.1% fall in annuity rates, with standard annuities decreasing by average of 0.33% with smoker and lifestyle enhanced annuities lower by 0.02%. Find out more about the change in gilt yields:

Further falls in gilt yields due to fears over US jobs and the eurozone

In the short term we would expect standard rates to fall 0.77% on average with smoker and lifestyle enhanced annuities to decrease by 1.08% on average.

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   26%
annuity rates no change   15%
annuity rates decrease   49%
Increases of:
0.3% - 7.6%

  Decreases of:
0.3% - 3.2%
  Fig 1: Annuity rate changes for the whole market

Fig 1 above shows that 26% of annuity rates increased virtually all being standard from 0.2% to 1.5%. There were 14% of annuities that remained unchanged and all the 36% decreases in rates were for smoker and lifestyle enhanced annuities falling by 0.2% to 1.8%.

The largest increase was for smoker and lifestyle enhanced annuities for those aged 55 where rates were up by between 4.0% and 7.6% with smaller increases for standard annuities between the age of 55 and 65 of up to 1.5%.

Equity markets were higher starting at 6,411 and ending at 6,430 up 19 points. Pensioners still invested should have experienced a slight increase in their pension fund when purchasing annuities during the month.

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

There has been a mix of increases and decreases from providers and their pension annuity rates with none following gilt yields for the moment. The following chart shows the three month changes.

Standard annuity 3 month changes
Fig 3: Change in standard rates last 3 months compared to gilt yields

Over the last three months annuities remain higher and there is a significant difference between gilt yields which could see annuity rates reduce if yields do not improve.

What happened to enhanced rates

Lifestyle enhanced and smoker annuities decreased but not fully reflecting the fall in yields as can be seen in the following chart showing the averages for single and joint pensioners from age 55 to 75 with different annuity options such as level or escalating rates.

Enhanced annuity 1 month changes
Fig 4: Change in enhanced rates last month compared to gilt yields

Lifestyle enhanced and smoker providers have followed gilt yields for single life annuities but kept joint life rates higher for medium term suggesting joint life rates may reduce in the future. The following chart shows the changes over a longer three month time period.

Enhanced annuity 3 month changes
Fig 5: Change in enhanced rates last 3 months compared to gilt yields

Over three months lifestyle enhanced and smoker rates remain higher than the 15-year gilt yields and the joint life annuities are likely to decrease in the next few months if yields do not improve. For the latest updates see Annuity Rates Review.

News related stories:
Gilt yields 2013 lower over US jobs and eurozone
Retirement annuity risk as gilt yields fall after ECB criticism
Enhanced annuity rates fall by 1% as Partnership reacts to gilt yields
Latest annuity rates may fall 4% as gilt yields collapse after US jobs data
Impaired annuities reduce 1.5% from leading providers on poor yields

Annuity Rates
  Age Single Joint  
  55 £4,066 £3,782  
  60 £4,544 £4,240  
  65 £5,246 £4,794  
  70 £6,045 £5,433  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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