Federal Reserve delay good for annuity rates

The decision by the Federal Reserve to delay a rise in interest rates has resulted with investors dumping US Treasury notes, German Bunds and UK gilts. Other factors driving investor action was less gloomy data from Europe, failure of a German five-year debt auction and over supply of US bonds.

Standard providers were higher by an average of 0.43% and we would expect to see an increase of 1.77% in the short term and in the medium term of 3 months annuity rates will increase by 4.41%.

Smoker and enhanced annuity providers increased their rates by 1.26% on average with an increase of 0.94% possible in the short term and in the medium term of 3 months we can expect an increase of 7.35%.

Equity markets started at 6,855 and increased by 106 points to end at 6,961.

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   71%   12%   17% Increases of: up to 4.5%   Decreases of: up to 2.8%

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

15-Year Gilt Yields - April 2015     Wed 1st Thurs 2nd Fri 3rd     1.93%   0.03 1.97%   0.04 1.97% Mon 6th Tues 7th Wed 8th Thurs 9th Fri 10th 1.96%   0.01 1.97%   0.01 1.96%   0.01 1.97%   0.01 1.97% Mon 13th Tues 14th Wed 15th Thurs 16th Fri 17th 1.97% 1.90%   0.07 1.93%   0.03 1.97%   0.04 1.97% Mon 20th Tues 21st Wed 22nd Thurs 23rd Fri 24th 1.97% 1.97% 2.10%   0.13 2.07%   0.03 2.03%   0.04 Mon 27th Tues 28th Wed 29th Thurs 30th   2.04%   0.01 2.08%   0.04 2.19%   0.11 2.18%   0.01

Fig 2: Daily 15-year gilt yields and changes