Providers send impaired annuities lower

Impaired annuity providers have decreased annuity rates by up to 3.6% following a fall in the 15-year gilt yields which were lower by 18 basis points. Generally a fall of 18 basis points would result in a 1.8% decrease in annuity rates so providers of impaired annuities have been agressive.

Investors had anticipated a rise in US interest rates by the Federal Reserve, however, these have remained at their record low level of zero percent resulting in a fall in yields to 2.10% for the month.

Standard providers lowered rates by 0.64% and we would expect to see a annuities lower by 1.16% in the short term and in the medium term of 3 months annuity rates will decrease by 3.84% if yields do not improve further.

Smoker and enhanced annuity providers decreased their rates by 1.59% on average with a decrease of 0.21% possible in the short term and in the medium term of 3 months we can expect a decrease of 0.30%.

Equity markets started at 6,248 and decreased by 186 points to end at 6,062.

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   9%   70%   21% Increases of: up to 1.8%   Decreases of: up to 3.6%

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 - September 2015   Tues 1st Wed 2nd Thurs 3rd Fri 4th   2.25%   0.03 2.24%   0.01 2.22%   0.02 2.12%   0.10 Mon 7th Tues 8th Wed 9th Thurs 10th Fri 11th 2.10%   0.02 2.15%   0.05 2.17%   0.02 2.18%   0.01 2.15%   0.03 Mon 14th Tues 15th Wed 16th Thurs 17th Fri 18th 2.17%   0.02 2.22%   0.05 2.25%   0.03 2.27%   0.02 2.16%   0.09 Mon 21st Tues 22nd Wed 23rd Thurs 24th Fri 25th 2.23%   0.05 2.12%   0.11 2.14%   0.02 2.09%   0.05 2.17%   0.08 Mon 28th Tues 29th Wed 30th     2.11%   0.05 2.08%   0.03 2.10%   0.02

Fig 2: Daily 15-year gilt yields and changes