Smoker and standard providers slow to react

Despite the positive reaction from providers of impaired rates, standard rate providers are yet to follow. Their rates have been reducing since July 2014 although there is now pressure for them to make some improvements.

Fig 1: Chart comparing annuity rates and 15-year gilt yields

The above chart shows the 15-year gilt yields have recovered from from an all time low compared to annuities from last summer. As rates have been tracking yields lower over this period it suggests providers of smoker and standard are set to raise rates as with the impaired providers.

For our benchmark example for a person aged 65 with a fund of £100,000 could have purchased a single life, level annuity with an income of £5,494 pa. If standard annuities rise by 4.7% this would increase rates by £258 pa to £5,752 pa.

In terms of lifetime income, the Office of National Statistics (ONS) would expect a male to live for 17.3 years and he will have £4,463 more over his lifetime. For a female she can expected to live for 20.4 years increasing her income by £5,263.

Equity markets boost pension funds

A rise in annuity rates would be boosted for anyone that remains invested tracking the FTSE -100 index before buying their annuity. Since reaching a low for the year in January of 6,367, the index has increased 592 points to a new high of 6,959 up 9.29%.

This would add directly to income an annuity can offer and for anyone buying an annuity they would benefit from this extra for their lifetime. The last time the FTSE-100 index was at this level was back in December 1999 during the dotcom bubble. Markets were buoyant after the Greece had agreed terms from their creditors after weeks of uncertainty.