Annuities rates disappoint even as gilt yields improve

As the US Federal Reserve begins to taper the Stimulus package by $10 billion down to $75 billion the 15-year gilt yields ended the month 21 basis points higher at 3.42% and as a rough guide a 21 basis point rise would see annuity rates increase by 2.1%.

Standard providers actually decreased their rates by 0.47% and we would expect so see a further improvement of about 2.57% with enhanced and smoker annuity providers also decreasing their rates by 0.06% on average and a further 1.16% is possible.

Over the past two months yields have improved by 38 basis points representing a significant improvement in yields which has yet to be fully reflected by the annuity providers.

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   14%   17%   69% Increases of: 0.1% - 0.6%   Decreases of: 0.1%-2.0%

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

Impaired providers have reduced their rates even though the data for gilt yields were positive and it would appear competition for business was low at the end of the year. See Annuity Rates Review For the latest updates.

Changes to the 15-year gilt yields

The Federal Reserve have finally taken action to reduce the $85 billion a month stimulus package by $10 billion to $75 billion after a series of positive US economic data sending prices for bonds lower and yields higher.

For November the yields range for the month was from 3.21% to 3.47% or 26 basis points which is a greater range than the previous months with standard as well as smoker and enhanced annuities lagging behind yields. 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 - December 2013 Mon 2nd Tues 3rd Wed 4th Thurs 5th Fri 6th 3.28%   0.07 3.25%   0.03 3.32%   0.07 3.34%   0.02 3.31%   0.03 Mon 9th Tues 10th Wed 11th Thurs 12th Fri 13th 3.33%   0.02 3.30%   0.01 3.29%   0.01 3.31%   0.02 3.31% Mon 16th Tues 17th Wed 18th Thurs 19th Fri 20th 3.30%   0.01 3.29%   0.01 3.33%   0.04 3.37%   0.04 3.35%   0.02 Mon 23rd Tues 24th Wed 25th Thurs 26th Fri 27th 3.37%   0.02 3.39%   0.02   3.39% 3.47%   0.08 Mon 30th Tues 31st       3.43%   0.04 3.42%   0.01

Fig 2: Daily 15-year gilt yields and changes

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