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31 January 2013 last updated
Annuity Rates - January 2013

Standard annuities are lower whereas smoker annuity providers have increased by 2.25% following gilt yields that are 29 basis points higher

Standard rates:  
annuity rates down 0.46%
Smoker rates:  
annuity rates down 2.15%

The deal reached over the US fiscal cliff to prevent $600 billion of spending cuts and tax rises from January allowed investors to move forward with greater certainty resulting in a rise in equity markets and gilt yields.

Annuity rates are mainly based on the 15-year gilt yields and these increased from 29 basis points from 2.31% to 2.60%.

Coupled with the abnormal fall in rates last month due to the EU Gender Directive introducing Unisex rates and the expectation was for an increase in annuities to benefit pensioners retiring.

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Annuity rates expected to increase further

With the 15-year gilt yields increasing 29 basis points we would expect to see a 2.9% increase in annuity rates and instead standard annuities decreased by an average of 0.46% whereas smoker annuities increased by 2.15%.

In the short term we would expect standard rates to increase by a further 3.36% and over the medium term of three months by 3.90%. For smoker rates in the short term the increase expected is 0.75% and the medium term 2.52%.

Fig 1 below shows the
annuities changes for the whole market and the proportion that have either increased, decreased or or did not change. It also shows the range increases or decreases of the annuity rates over the last month:

Annuity Rates Changes
Increase No change Decrease
annuity rates increase   43%
annuity rates no change   37%
annuity rates decrease   20%
Increases of:
0.3% - 6.2%

  Decreases of:
0.3% - 1.0%
  Fig 1: Annuity rate changes for the whole market

Fig 1 above shows that 43% of annuity rates increased for rates including standard and smoker. These increases were from 0.3% to 6.3% for smokers only. Of the 20% decreases all of these were standard annuities between the age of 65 and 75.

Equity markets were higher starting at 5,898 and ending at 6,277 up 379 points. Pensioners still invested should have experienced an increase in their pension fund when purchasing annuities during the month.

What happened to rates during January

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:

Male annuities - changes last month
Fig 2: Change in standard rates last month compared to gilt yields

Providers resisted the pressure from gilt yields to increase annuity rates by either making no changes or decreasing rates. The following chart shows how the single, level rates changed for different ages from 55 to 75.

Female annuities - changes last month
Fig 3: Change in standard single rates last month compared to gilt yields

Smoker annuities increased across the board as can be seen in the following chart showing the averages.

Joint annuities - changes last month
Fig 4: Change in smoker rates last month compared to gilt yields

Looking specifically at the single life, level rates, in some cases the smoker increases were greater than the rise in gilt yields especially for younger ages from 55 to 65 with only small increases for those aged 70 to 75.

Joint annuities - changes last month
Fig 5: Change in smoker single rates last month compared to gilt yields

The largest increase was 6.25% for for 50% joint life aged 60. In monetary terms for a fund size of £100,000 this has resulted in an increase of £306 pa from £4,896 pa to £5,202 pa. Based on the Office of National Statistics (ONS) this couple would be expected the husband to life for 21.8 years and his wife for 24.6 years years so the gain in income would be a significant £7,099 over their lifetime.

For single lives the largest monetary increase was for males and females aged 65 with a level, 10-year guaranteed annuity which increased by £282 pa. Based on the ONS a male would be expected to life for 17.8 years with a gain in income of £5,019 over his lifetime and for a female she would live for 20.4 years and the gain in income would be £5,752 over her lifetime.
See Annuity Rates Review for the latest updates.

Impaired annuity rates have started to increase by providers during January and in particular by market leaders Just Retirement.

News related stories:
Unisex annuity rates for females the winners and losers
Pension annuity income and equities rise after fiscal cliff deal
Annuities income reduce as equities fall with fical cliff deadlock
UK annuity income from pension funds boosted by fiscal cliff offer
Related internet links:
Telegraph - Fiscal cliff deal pushes markets higher
BBC - Obama praises US fiscal cliff deal

Annuity Rates
  Age Single Joint  
  55 £4,574 £4,142  
  60 £4,961 £4,610  
  65 £5,691 £5,238  
  70 £6,478 £6,098  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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