Impaired rates 6% lower ahead of Solvency 2

For the fifth month in a row providers of impaired annuities have reduced rates and during the month of October by an average of 1.9%. For some specific medical conditions, ages and annuity features from Just Retirement, Liverpool Victoria and Partnership rates are lower by up to 6%.

Although the 15-year gilt yields have reduced by only 6 basis points, impaired, enhanced and smoker rates are significantly lower.

Providers are using the Solvency 2 legislation as a reason for further falls in rates. Solvency 2 requires providers to strengthen their balance sheets by retaining more capital to protect policyholders from future uncertainty.

Standard providers lowered rates by 0.46% and we would expect to see a annuities to reduce by a further 1.90% in the long term.

Smoker and enhanced annuity providers decreased their rates by 1.90% on average and in the long term rates may rise by 0.2%.

Equity markets started at 6,361 and decreased by 5 points to end at 6,356.

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   32%   7%   61% Increases of: up to 3.8%   Decreases of: up to 6.0%

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

15-Year Gilt Yields - November 2015 Mon 2nd Tues 3rd Wed 4th Thurs 5th Fri 6th 2.26%   0.03 2.31%   0.05 2.32%   0.01 2.30%   0.02 2.35%   0.05 Mon 9th Tues 10th Wed 11th Thurs 12th Fri 13th 2.36%   0.01 2.34%   0.02 2.38%   0.04 2.33%   0.05 2.31%   0.02 Mon 16th Tues 17th Wed 18th Thurs 19th Fri 20th 2.29%   0.02 2.29% 2.26%   0.03 2.23%   0.03 2.24%   0.01 Mon 23rd Tues 24th Wed 25th Thurs 26th Fri 27th 2.23%   0.01 2.21%   0.02 2.22%   0.01 2.18%   0.03 2.16%   0.01 Mon 30th         2.17%   0.01

Fig 2: Daily 15-year gilt yields and changes