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31 March 2013 last updated
Annuity Rates - March 2013

UK annuity rates have been mixed with standard annuities higher and impaired rates lower as gilt yields fall 19 basis points on investor fears

Standard rates:  
annuity rates down 0.96%
Enhanced rates:  
annuity rates down 0.84%

Impaired annuity rates are more sensitive to changes in the 15-year gilt yields than standard rates and the recent decreases in yields by 19 basis points has forced providers to reduce rates.

On the other hand providers of standard annuities have been slow to improve their rates this year and were able to make some increases such as from Legal & General with many increases of about 1.5%.

These changes were before the last fall in yields and we may see annuity rates decrease next month if economic news continues to show difficulties.

 
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Annuity rates will decreased by providers

With the 15-year gilt yields decreasing 19 basis points we would expect to see a 1.9% fall in annuity rates, however, standard annuities increased by an average of 0.96% with smoker and lifestyle enhanced annuities decreasing by 0.84%. Find out more about the change in gilt yields:

Gilt yields fall after US tax cut and Cyprus bank account fears

In the short term we would expect standard rates to fall 2.86% on average with smoker and lifestyle enhanced annuities to decrease by 1.06% 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   50%
annuity rates no change   14%
annuity rates decrease   36%
Increases of:
0.2% - 1.5%

  Decreases of:
0.2% - 1.8%
  Fig 1: Annuity rate changes for the whole market

Fig 1 above shows that 50% 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%.

Equity markets were higher starting at 6,361 and ending at 6,411 up 50 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 1 month changes
Fig 2: Change in standard rates last month compared to gilt yields

Providers have increased their pension annuity rates even though yields have decreased and will be pressured to decrease rates next month. 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 the difference is similar with single life annuities particularly vulnerable to a decrease of 2.5-3.0%. There may be less change in joint life annuities as these have not been increased as aggressively as single life rates.


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

Gilt yields have decreased significantly with lifestyle enhanced and smoker providers partially reflecting the falls suggesting further decreases will follow across the board. 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 are considerably higher than yields and confirms the likely decrease in annuity rates can be expected next month. For the latest updates see Annuity Rates Review.

News related stories:
Gilt yields fall after US budget cut and Cyprus bank account fears
Pension annuities risk with gilt yields fall as Cyprus reject bailout deal
Buying annuities made safer as 15-year gilt yields recover
Annuity rates boost as Bank of England rejects more stimulus
Enhanced annuities providers decrease rates by 1.2% as gilt yields fall

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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