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31 February 2013 last updated
Annuity Rates - February 2013

Impaired annuities lead the market with large increases as competition intensifies although gilt yields fall means there may be a correction

Standard rates:  
annuity rates down 1.49%
Enhanced rates:  
annuity rates down 1.65%

During the month impaired annuities increased the most with Just Retirement leading followed by Partnership, Liverpool Victoria, MGM Advantage, Aviva and Canada Life. Impaired annuity rates increased by 7% since the start of the year as 15-year gilt yields increased from 2.31% to 2.76%.

Yields have rediced by 24 basis points and actually closed lower for the month after worrying comments from the US Federal Reserve, threats of more Quantitative Easing from the Bank of England and the Italian electon deadlock that risked the eurozone returning to the debt crisis if Italy could not be rescued with a bailout from the ECB.
 
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Annuities expected to fall due to lower gilt yields

With the 15-year gilt yields decreasing 8 basis points we would expect to see a 0.8% fall in annuity rates and instead standard annuities increased by an average of 1.49% whereas lifestyle enhanced and smoker annuities increased by 1.65%.

In the short term we would expect standard rates to fall by a further 2.29% with lifestyle enhanced and smoker to decrease by 2.45%. If yields recover their would be only partial falls in the short term as providers react and become more cautious.

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   97%
annuity rates no change   0%
annuity rates decrease   3%
Increases of:
0.3% - 5.0%

  Decreases of:
0.3% - 3.5%
  Fig 1: Annuity rate changes for the whole market

Fig 1 above shows that 97% of annuity rates increased for rates including standard and smoker from 0.3% to 5.0%. Of the 3% decreases all of these were lifestyle enhanced and smokers for the age of 55.

Equity markets were higher starting at 6,277 and ending at 6,361 up 84 points. Pensioners still invested should have experienced an 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 changes
Fig 2: Change in standard rates last month compared to gilt yields

Providers were caught out this month increasing their rates while yields suddenly decreased at the end of the month so we can expect some lower rates next month for single life pension annuity rates. The following chart shows how the single, level rates changed for different ages from 55 to 75.

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


What happened to enhanced rates

Lifestyle enhanced and smoker annuities increased across the board as can be seen in the following chart showing the averages.

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

As with the standard rates there were increase across the board for lifestyle enhanced and smokers with decreases expected for those aged 55 to 60 in particular.

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

The largest increase were for those aged 70 to 75 and for a fund of £100,000 these would be £197 pa to £234 pa for lifestyle enhanced and smokers on a joint life basis. See Annuity Rates Review for the latest updates.

News related stories:
Gilt yields February 2013 lower from investor US and Italy fears
Annuity income lower as markets and gilts fall on Italy election deadlock
Best annuity income and markets fall 1.6% after US Fed stimulus fears
Pension annuity rates threat of £175bn QE from Bank of England
Buying annuity boosted as gilt yields rise after EU-US trade deal

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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