Budget changes will improve provider offers

The 15-year gilt yields were unchanged after a quiet month with a narrow range as with the previous month. As a general rule a 10 basis point rise would result in a 1.0% rise in annuity rates.

Despite this providers have been changing their rates as the Budget is changing the market after the radical move to allow people to take their full fund as a cash sum less tax at their marginal rate. This will not become effective until April 2015 and the government has entered a consultation period with the industry which could result in alterations to some of the details.

Standard providers increased their rates by 0.73% and we would expect so see a decrease of about 0.73% in the short term but in the medium term of 3 months they can decrease by 1.74%.

Smoker and enhanced annuity providers decreased their rates by 1.54% on average and an increase of 1.54% is possible in the short term but in the medium term of 3 months the decrease of 2.92%.

The Budget changes are likely to lead to greater competition as the annuity market reduces in size. The chancellor also extended the Triviality rules allowing people with small funds to take these as a cash fund less tax at their marginal rate. Previously, where the value of all pensions is less than £18,000 a person could take their fund(s) and this has been increased to £30,000.

Equity markets started at 6,810 and decreased 212 points to end at 6,598. This represents a 3.11% fall and for people that remain invested have seen their fund decrease in value and for those buying smoker and enhanced annuities this has further reduced their retirement income with lower annuity rates.


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%   14%   56% Increases of: 0.2% - 2.3%   Decreases of: 0.2%-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

Impaired providers have also decreased their rates and changes in the Budget are likely to make them review their offerings with improvements. See Annuity Rates Review For the latest updates.

Changes to the 15-year gilt yields

The US Federal Reserve has reassured investors that there will not be any sudden change in the stimulus policy and that there will be a steady decline over time.

The stimulus has reduced from $85 billion last year to $55 billion in March and with the Bank of England hinting that interest rates will rise sooner rather than later gilt yields increased 7 basis points to 3.21% before returning to where they started.

For March the yields range for the month was from 3.11% to 3.23% or 12 basis points, a low range compared to previous months. Fig 2 below shows the daily 15-year gilt yields and the increase or decrease from the previous day's close:

15-Year Gilt Yields - March 2014 Mon 3rd Tues 4th Wed 5th Thurs 6th Fri 7th 3.11%   0.06 3.14%   0.03 3.17%   0.03 3.21%   0.04 3.22%   0.01 Mon 10th Tues 11th Wed 12th Thurs 13th Fri 14th 3.23%   0.01 3.22%   0.01 3.19%   0.03 3.14%   0.05 3.11%   0.03 Mon 17th Tues 18th Wed 19th Thurs 20th Fri 21st 3.12%   0.01 3.12% 3.14%   0.02 3.21%   0.07 3.19%   0.02 Mon 24th Tues 25th Wed 26th Thurs 27th Fri 28th 3.14%   0.05 3.16%   0.02 3.15%   0.01 3.13%   0.02 3.17%   0.04 Mon 31st         3.17%

Fig 2: Daily 15-year gilt yields and changes

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