Economic fears send yields 30 basis points lower

The UK FTSE-100 index reduced 464 points to 6,388 after investor concern over economic growth in the US, Europe and other countries. Poor economic data from the US with falling demand started the sell-off in equities.

Other news of Greece exiting their bailout programme, China's weaker than expected inflation data and Germany in economic slowdown all contributed to the falls. This sent the 15-year gilt yields 30 basis points lower for the month before recovering with a bounce back of less threatening economic news in the following weeks.

Standard providers fell on average by 1.31% and we would expect to see an increase of 0.11% in the short term and in the medium term of 3 months annuity rates will decrease by 1.26%.

Smoker and enhanced annuity providers decrease their rates by 1.75% on average with an increase of 0.55% possible in the short term and in the medium term of 3 months we can expect a decrease of 0.90%.

Equity markets started at 6,622 and decreased by 76 points to end at 6,546. This represents a 1.1% fall and for people that remain invested will still see a fall in their annuity income with the combined fall in 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   6%   2%   92% Increases of: up to 4.6%   Decreases of: up to 5.4%

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 - October 2014     Wed 1st Thurs 2nd Fri 3rd     2.73%   0.05 2.71%   0.02 2.76%   0.05 Mon 6th Tues 7th Wed 8th Thurs 9th Fri 10th 2.73%   0.03 2.67%   0.06 2.64%   0.03 2.64% 2.65%   0.01 Mon 13th Tues 14th Wed 15th Thurs 16th Fri 17th 2.57%   0.07 2.54%   0.03 2.42%   0.12 2.49%   0.07 2.59%   0.10 Mon 20th Tues 21st Wed 22nd Thurs 23rd Fri 24th 2.56%   0.03 2.58%   0.02 2.60%   0.02 2.63%   0.03 2.63% Mon 27th Tues 28th Wed 29th Thurs 30th Fri 31st 2.62%   0.01 2.64%   0.02 2.66%   0.02 2.64%   0.02 2.66%   0.02

Fig 2: Daily 15-year gilt yields and changes