Annuity rates still lower despite higher yields

The 15-year gilt yields were higher by 14 basis points for the month as the European Central Bank (ECB) President Mario Draghi indicated a broadly positive experience with negative deposit interest rates.

He also expressed a need to tackle low inflation and this started a global sell off of bonds sending yields higher. As a general rule a 14 basis point rise in yields would result in a 1.4% increase in annuity rates.

Following the merger of enhanced annuity providers Just Retirement and Partnership Assurance to form the Just Retirement Partnership Group (JRP Group) rates have reduced across the board.

Providers of enhanced and impaired annuities dominate the conventional annuity market by offering lifestyle rates and the recent change in their rates have impacted the whole market.

Standard providers decreased rates by 1.53% and we would expect in the short term rates may rise by 2.93%. Smoker and enhanced annuity providers decreased their rates by 0.77% on average and in the short term rates may rise by 2.17%.

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   4%   26%   70% Increases of: up to 2.0%   Decreases of: up to 4.2%

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 - April 2016         Fri 4th         1.95%   0.01 Mon 4th Tues 5th Wed 6th Thurs 7th Fri 8th 1.97%   0.02 1.93%   0.04 1.92%   0.01 1.88%   0.04 1.91%   0.03 Mon 11th Tues 12th Wed 13th Thurs 14th Fri 15th 1.95%   0.04 2.00%   0.05 1.88%   0.04 1.98%   0.02 1.96%   0.02 Mon 18th Tues19th Wed 20th Thurs 21st Fri 22nd 2.02%   0.06 2.05%   0.03 2.01%   0.04 2.09%   0.08 2.11%   0.02 Mon 25th Tues 26th Wed 27th Thurs 28th Fri 29th 2.11% 2.18%   0.07 2.12%   0.06 2.12% 2.10%   0.02

Fig 2: Daily 15-year gilt yields and changes