Annuity rates under pressure for a fall

This summer annuity rates have been increasing with more competition and rising gilt yields. Since February our standard rates benchmark example for a 65 year old with a fund of £100,000 buying a single life, level annuity has increased by £353 pa or 6.4% to £5,847 pa.

Since reaching a high of 2.52% at the end of July yields have reduced to the current of 2.12% while standard rates have remained unchanged as shown in the table below, suggesting a fall in annuities could occur if yields do not increase.

Smoker and enhanced annuities have reduced by 0.94% on average last month and have made a start to reduce the difference with gilt yields.

Equities fall on US data

As with the 15-year gilt yields, equities reduced with the FTSE-100 index lower by 151 points to 6,194. Despite the jobs figures being quite good they failed to give a clear cut indication of what the Federal Reserve are likely to decide about interest rates.

US interest rates remain at an all time low of 0% and markets believe there is a 34% chance the Fed will increase rates. This is an increase from the 30% expected before the employments figures were released.

The jobs figures for August of 173,000 have traditionally underestimated the actual amount and are revised upwards by an average of 58,000 jobs in the month following. Both the jobs figures for June 245,000 and July 245,000 were revised up to these levels adding an additional 44,000 jobs between them in total.

The impact of lower equities would impact pension funds significantly that remain invested and annuity falling would further lower the income from annuities.