Markets volatile due to recovery fears

Equity markets have been volatile over recovery fears in the US and Europe which is affecting gilt yields. This has resulted with only a modest increase in the 15-year gilt yields of 8 basis points to end at 2.78%.

Standard providers increased their rates on average by 0.98% and we would expect so see a slight decrease of 0.18% in the short term and in the medium term of 3 months annuity rates will decrease by 2.18%.

Smoker and enhanced annuity providers increased their rates by 0.53% on average with an increase of 0.27% possible in the short term and in the medium term of 3 months we can expect a decrease of 2.37%.

Equity markets started at 6,820 and increased by 198 points to end at 6,622. This represents a 2.9% rise and for people that remain invested will still see a fall in their annuity income as the fall in rates surpassed this figure.

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   80%   4%   16% Increases of: up to 7.5%   Decreases of: up to 1.5%

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 - September 2014 Mon 1st Tues 2nd Wed 3rd Thurs 4th Fri 5th 2.71%   0.01 2.77%   0.06 2.80%   0.03 2.83%   0.03 2.82%   0.01 Mon 8th Tues 9th Wed 10th Thurs 11th Fri 12th 2.83%   0.01 2.84%   0.01 2.87%   0.03 2.86%   0.01 2.89%   0.03 Mon 15th Tues 16th Wed 17th Thurs 18th Fri 19th 2.90%   0.01 2.89%   0.01 2.87%   0.02 2.93%   0.06 2.88%   0.05 Mon 22nd Tues 23rd Wed 24th Thurs 25th Fri 26th 2.84%   0.04 2.82%   0.02 2.81%   0.01 2.80%   0.01 2.81%   0.01 Mon 29th Tues 30th       2.79%   0.02 2.78%   0.01

Fig 2: Daily 15-year gilt yields and changes