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30 November 2011 last updated
Annuity Rates - November 2011 review

Fall in gilt yields drives annuity rates lower with worries over Eurozone

There was a 30 basis point decrease in the 15-year gilt yields for the month from 3.00% down to 2.70% after fears that EU leaders would not be able to control the contagion within the Eurozone.

After the news of the Greek Referendum the cost of borrowing for Italy soared with the two year bonds cost increasing to 7.8% up from 4.6% previously. These levels are near to unsustainable levels for the country and due to the markets fear that Italy could be the next to require a bailout.

These factors have resulted in annuity rates decreasing by as much as 3.5% for standard annuities and 2.7% for smoker rates. Impaired annuity rates have also decreased to reflect the fall in gilt yields.

Annuity Rates Review November 2011
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Annuities decrease with Eurozone uncertainty

Find out more: gilt yields for November

For November the total annuity rates market decreased by 100% and no annuity rates remained the same or increased. These figures are based on a fund of £100,000 from male, female and joint and with different features such as level and escalating.

Fig 3 below shows the latest 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 increases or decreases of the annuity rates over 1 month ending 30th November 2011:

Annuity Rates Market Changes
Increase No change Decrease
annuity rates no change   0%
annuity rates no change   0%
annuity rates decrease   100%
Increases of:

  Decreases of:
0.2% - 5.6%
  Fig 3: Annuity rates changes for the whole market ending Nov 2011

Fig 3 above shows that for November there was a significant decrease in the latest annuity rates market overall for both standard and smoker rates. The range of decreases were from 0.2% to as high as 5.6% with the largest decreases for standard annuity rates with escalation for pensioners aged 55 to 65 for males, females and joint life annuities.

Fig 4 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 30th November 2011:

Annuity Rate Changes - Standard
  Male Female Joint
annuity rates down   1.57%
annuity rates down   1.41%
annuity rates down   2.36%
Level +
10 yr guarantee
annuity rates down   2.01%
annuity rates down   1.66%
annuity rates down   2.80%
3% escalation
annuity rates down   3.24%
annuity rates down   2.76%
annuity rates down   3.45%
Annuity Rate Changes - Smoker
  Male Female Joint
annuity rates up   2.15%
annuity rates up   2.37%
annuity rates up   0.81%
Level +
10 yr guarantee
annuity rates up   2.42%
annuity rates up   2.37%
annuity rates up   2.05%
3% escalation
annuity rates up   2.73%
annuity rates down   2.62%
annuity rates down   0.64%
  Fig 4: Latest annuity rates change for 1 month ending 30 Nov 2011

Standard annuities have seen the largest reductions for pensioners aged between 55 and 60 with typical decreases of 3.0% to 5.6% and smaller decreases for those aged 70 to 75 of 0.2% to 2.0%.

For smoker pension annuity rates the reduction is the least for joint life annuities with decreases of 0.3% to 2.5% and the largest reductions for pensioners aged between 55 to 60 with typical decreases of 2.0% to 4.0%. The decreases were mainly due to Liverpool Victoria reducing their rates across the board twice during November.

A 20 basis point reduction in the 15-year gilt yields would result in roughly a 2.0% reduction in annuity rates. Looking at the reductions over two months, the standard joint annuity rates have decreased by a greater amount than this, 2.88% for level joint rates and 4.08% for 3% escalating joint rates. This would suggest an increase for these annuity rates of 0.88% to 2.08% if gilt yields remain above 2.7% and the same is true for single male escalating rates. Smoker annuity rates appear to have reflected the decrease in gilt yields in the short term although over the longer term these rates do look like they could fall by a further 3-4%.

The impaired annuity rates were volatile with times where margins were nonexistent to times at the end of November with improving margins and improvements in the annuity rates.
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Annuity Rates
  Age Single Joint  
  55 £4,352 £3,999  
  60 £4,783 £4,292  
  65 £5,456 £4,877  
  70 £6,270 £5,588  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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