Fig 4 shows the 15-year gilt yields have reduced significantly from 3.98% in 30 June 2011 to today with yields at 2.46% mainly due to the uncertainty over the Eurozone debt crisis.

Annuity rates are linked to the 15-year gilt yield and as a rough guide a 30 basis point change in gilt yields translate to a 3.0% change in rates. Providers may not change the rates immediately, however, in time will annuity rates will be adjusted to reflect the gilt yields. For the month of November gilt yields finished down only 20 basis point and both standard and smoker annuity rates reduced by 2.15% which is slightly more than the reduction in gilt yields. From the 30 June 2011 to 30 November the 15-year gilt yields have reduced by 128 basis points and annuity rates by 12.2% across the board so this is very similar decrease.

The FTSE-100 index had reduced from 6,000 by the end of June to 5,505 by the end of November. The issues in the Eurozone and general fears of lower global economic growth mean equities will remain volatile and if pensioners are invested in equities there is a risk that their funds will reduce before their fund is transferred using the open market option. There is also the risk that reducing gilt yields will result in falling annuity rates.

This has a double negative impact on pensioner income where their pension funds reduced and the lower annuity rates are based on this lower fund.