Providers slow to increase their rates

Providers of smoker and standard rates have been slow to react to improving gilt yields and we are yet to see any meaningful increases in contract to impaired annuities with increases of up to 3.5%.

Smoker and enhanced annuity providers decrease their rates by 0.92% on average with an increase of 5.62% possible in the short term and in the medium term of 3 months we can expect a decrease of 5.17%.

Equity markets started at 6,749 and increased by 198 points to end at 6,947. This represents a 2.9% rise and for people that remain invested will see a fall in their annuity income even with improving equities.

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   27%   24%   49% Increases of: up to 1.4%   Decreases of: up to 3.0%

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 - February 2015 Mon 2nd Tues 3rd Wed 4th Thurs 5th Fri 6th 1.71%   0.03 1.79%   0.08 1.86%   0.07 1.87%   0.01 1.98%   0.11 Mon 9th Tues 10th Wed 11th Thurs 12th Fri 13th 1.94%   0.04 2.02%   0.08 2.04%   0.02 2.04% 2.06%   0.02 Mon 16th Tues 17th Wed 18th Thurs 19th Fri 20th 2.04%   0.02 2.15%   0.09 2.20%   0.05 2.19%   0.01 2.12%   0.06 Mon 23th Tues 24th Wed 25th Thurs 26th Fri 27th 2.15%   0.03 2.08%   0.07 2.07%   0.01 2.09%   0.02 2.15%   0.06

Fig 2: Daily 15-year gilt yields and changes