The Eurozone crisis continues in November and this has a direct impact on gilt yields and further threatens to force annuity rates lower. There is uncertainty following the Greece Prime Minister George Papandreou announcing a referendum over the bailout agreed in October. With further efforts of the leaders at the G20 summit to boost the International Monetary Fund (IMF) the Eurozone will probably need €3tn to stabilize the debt problem going forward taking into account other countries in particular Italy.

Equity markets:
The level of equities has a direct impact on the value of many pensioners that still have these investment at retirement. The FTSE-100 index is down by 8.25% since reaching 6,000 on 30 June compared to the 5,505 level on 30th November 2011. This is a significant improvement since the FTSE-100 index reached a low of 4,944 on 4th October and pensioners looking at taking their annuity would benefit from converting their equity funds to cash to avoid volatility as it can often take one month or more to transfer funds to a now provider using the open market option.

15-year gilt yields:
Gilt yields remain volatile and in October the range was from 2.39% to 3.23% which is 84 basis points. This would represents a change in annuity rates of 8.4%, however, on average the 15-year gilt yields returned to 2.90% by the beginning of November 2011. There is still downward pressure for gilt yields in the short term from the Eurozone and Quantitative Easing.

Annuity rates 2011:
For October 31% of annuity rates decreased compared to 70% in September and 43% of rates increased in October compared to 27% in September with significantly more pension annuity rates remaining unchanged. The decreases have also been smaller so providers such as Canada Life, Aviva, Legal & General and Liverpool Victoria have been applying competitive strategies to acquire annuity business. This changed on 14 November with Legal & General and Aviva reducing many of their rates by between 2% and 3%.

When gilt yields are at 3.00% this would suggest more margin for providers where up to 1.0% rise is available for annuity rates and when gilt yields are at 2.80% a 1.0% reduction in annuity rates would be made by providers. This is based on our benchmark example for a male aged 65, single life and level annuity rate. These changes would need the gilt yields to be consistently above 3.00% or below 2.80% for a change to occur across the board. Although Legal & General and Aviva have reduced many of their rates on average there is still the possibility for the remaining market to further reduce rates during November and this occurred on 28th November with Canada Life reducing their rates with the effect of annuity rates falling by 0.8% to 1.8% across the board.

Rates for 2012:
In 2012 annuity rates are expected to fall due the impact of four main factors, the Eurozone debt crisis, Quantitative Easing in the UK, Solvency II in December 2012 and unisex rates in January 2013.

Rates for 2013-2015:
If the economy can avoid another recession it is likely that interest rates will be raised with a growing UK economy. Although grow may be slow, this will mean that equity markets and gilt yields would rise and as a result annuity rates will increase. It is likely that at some time in 2012 annuity rates will reach their lowest levels before recovering.