Annuity rates higher despite lower yields with global economic concerns

15-year gilt yields chart - Based on figures for April 2020

April 2020 Review

Annuity rates increased as providers were more confident that the 15-year gilt yields are entering a period of stability following the extreme swings in March 2020.

The US Federal Reserve announced it could release $2.3 trillion in emergency business loans to support the economy with fiscal stimulus providing more support to growth recovering from the Coronavirus (Covid-19) crisis.

Yields reduce during the month over concerns about the global economic recovery post Coronavirus pandemic and oil future prices plunging to zero due to a lack of oil storage facilities.

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The 15-year gilt yields are lower by 18 basis points to 0.42% during April 2020 and was relatively stable compared to the previous month.

Providers of standard annuities increased annuity rates by an average of 0.87% for this month and we would expect rates to fall by -2.67% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of 0.62% and rates and we would expect rates to decrease -2.42% in the short term if yields do not fall.

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   78%   8%   14% Increases of: max 2.2%   Decreases of: max -2.6%

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