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30 April 2012 last updated
Annuity Rates - April 2012

Smoker annuities fall as concern over Eurozone finances increases

Overall many annuities remained as they were for March with 77% unchanged. Across the board there were no increases in annuity rates and 23% decreased for the month mainly form smoker annuities.

The 15-year gilt yields decreased during April by 8 basis points from 2.72% to 2.67% with a maximum range between the lowest and the highest of 21 basis points.

Lower gilt yields were due to
Eurozone concerns and in particular the expectation of a deeper recession. Although the month started positively with the FTSE rising and good manufacturing results for March the continued rumours of Spanish bank bailouts and International Monetary Fund (IMF) statement of fund moving out of Eurozone bonds for safer assets has resulted with further decreases in annuity rates in the UK.

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What changed in April for annuities

Across the board 77% of annuities remained unchanged for April and this indicates that providers are waiting for a direction from the evolving Eurozone crisis before making changes to rates. Standard annuity rates decreased fractionally by 0.04% due to decreases in all joint life rates for pensioners aged around 75 years, otherwise there were no changes. For smoker pension annuity rates the picture was the same as last month but will a lower overall decrease of 0.52% for the month.

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 1 month ending 30 April 2012:

Annuity Rates March Changes
Increase No change Decrease
annuity rates no change   0%
annuity rates no change   77%
annuity rates decrease   23%
Increases of:

  Decreases of:
0.5% - 1.3%
  Fig 1: Annuity rate changes for the whole market ending April 2012

Fig 1 above shows that there were no increases in annuity rates for April and this was concentrated in the standard annuity rates. Of the annuities that decreased totaling 23% the decrease was between 0.5% and 1.3% in value which is not a large a range as last month.

There has been little change in equity markets for April so pensioners that remain in equities may want to protect their fund values and transfer to cash before buying their annuity. With greater uncertainty in the market equities could fall and this would directly influence the level of the income from a reduced pension fund.

Fig 2 below shows for a fund of £100,000 the change in annuity rates for males, females and joint from age 55 to 75 with different annuity options such as level or escalating over 1 month ending 30 April 2012:

Annuity Rate Changes - Standard
  Male * Female * 50% Joint
annuity rates up   0.0%
annuity rates up   0.0%
annuity rates up   0.11%
Level + 10 yr
100% joint **
annuity rates up   0.0%
annuity rates up   0.0%
annuity rates up   0.12%
3% escalation
annuity rates up   0.0%
annuity rates up   0.0%
annuity rates up   0.14%
Annuity Rate Changes - Smoker
  Male * Female * 50% Joint
annuity rates up   0.73%
annuity rates up   0.53%
annuity rates up   0.36%
Level + 10 yr
100% joint **
annuity rates up   0.68%
annuity rates up   0.51%
annuity rates up   0.31%
3% escalation
annuity rates up   0.77%
annuity rates down   0.62%
annuity rates up   0.0%
  Fig 2: Annuity rate changes for 1 month ending 30 April 2012
  * Male and female on a single life basis only
  ** Joint life option is level, 100% spouse benefit and no guarantee

Looking in more detail at the changes the majority of standard rates remained unchanged and only joint annuities reduced by an average of 0.11% to 0.14% for the sectors shown above. In particular the decreases are for those aged 75 for all joint annuities including 50% and 100% joint basis on a level or escalating basis. The decrease for these annuity rates was approximately 0.5%.

For smoker annuity rates there was more aggressive reductions and the majority of the sectors shown above have seen decreases of between 0.31% and 0.77% of the income for an annuity. There was no change for annuities for pensioners aged 55 to 60 with changes only for those aged 65 to 75. The changes here are a reduction of between 1.00% and 1.25% and as an example this means for a fund of £100,000 a male aged 65 would have £84 per year less income and a female aged 70 would have £97 per year less income.

Annuity rates use the 15-year gilt yields to fund the majority of the income for pensioners. Gilt yields have reduced slightly by 5 basis points for April so as a general rule this would mean a fall in annuities of about 0.5%. The standard annuities have reduced by only 0.04% so they are likely to reduce further in the future. Smoker rates have reduced by 0.5% so they have matched the fall in gilts.

Over a longer period of time such as three months gilt yields have increased by 24 basis points whereas standard rates have increased by 1.3% and smoker rates have decreased by 1.5%. This would suggest over this period of time there is some room for annuities to increase, however, with greater uncertainty over the Eurozone in the short term this is unlikely. Over six months gilt yields are down 23 basis points but standard rates are only down by 0.4% suggesting rates may decrease in the long term. Smoker annuity rates are the reverse as they are down 4.7% so suggesting over the long term they should increase. See Annuity Rates 2012 for the latest updates.

There were some improvements in impaired annuity rates during the month from Just Retirement and MGM Advantage with increases of 1% although this reflects more conservative pricing from the previous month and taking advantage of more stable gilt yields in April.

News related stories:
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Quantitative easing annuity rates and income 6% low

Annuity Rates
  Age Single Joint  
  55 £6,361 £5,898  
  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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