Annuity rates rise with higher yields

The 15-year gilt yield was lower by 1 basis point to 1.66% during the month with some volatility following lower than expected inflation data. Investors cast doubt over the US Federal Reserve expectation of an interest rate rise before the end of the year sending yields lower. Later in the month yields increased as investors expected the ECB would announce a schedule for exiting quantitative easing in 2018

Providers of standard annuities increased rates last month and only a rise of 0.39% for this month and we would expect rates to decrease by -0.49% in the short term.

For smoker and enhanced annuity providers lowered their rates by an average of -0.40% on average and rates may increase by 0.30% in the short term.

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   30%   23%   37% Increases of: up to 3.1%   Decreases of: up to -3.8%

Fig 1: Annuity rate changes for the whole market

Fig 2: Change in standard rates last month compared to gilt yields

Fig 3: Change in enhanced rates last month compared to gilt yields