The Eurozone crisis has been the major factor in the current volatility in the annuity market and is likely to continue with the threat of Greece defaulting on it's debt at some stage in the near future. The other threat is Quantitative Easing that will reduce annuity rates when it is implemented and possibly throughout 2012 as suggested by Mervyn King at the Bank of England.

Equity markets:
This can have a large impact on the value of a pensioners fund if they remain in equities before purchasing an annuity and the FTSE-100 index is down by 7.6% since reaching 6,000 on 30 June compared to the 5,544 level on 31st October 2011. The recent increases in equities will have improved pension funds and although still below levels in the summer now is a better time than at the beginning of October to consider annuitising or even converting the equity fund to a cash fund to protect against future falls.

15-year gilt yields:
Gilt yields remain volatile but recent improvements in the 15-year gilt yield to above the 3.0% level on several occasions will help to prevent providers reducing rates in October although Quantitative Easing may push yields to much lower levels in the short to medium term. Gilt yields have been fluctuating widely up above the 3% mark and down below the 2.5% mark in a single day and this is extremely volatile activity during October.

Annuity rates 2011:
The recent falls in September have not been repeated in October other than small decreases as Canada Life, Aviva and Hodge Life reduced their annuity rates for some markets. When gilt yields are at 3.08% this suggests that across the board up to 1.0% rise is available for annuity rates from providers. For our benchmark example, aged 65, single life and level annuity this would be a 1.8% rise and for as couple aged 65 a for 50% joint life, level annuity it would be a 2.1% rise due to more aggressive rate decreases in September. The highest is for a male aged 65, single with 3% escalation and a potential rise of 2.9% available to providers. The issue here is that this margin can be eliminated in a single day if gilt yields reduce by 29 basis points and this has occurred regularly during October, so providers will wait for more stability in gilt yields before increasing annuity rates.

Rates for 2012:
Annuity rates are expected to fall in 2012 due the the impact of four main factors, the Eurozone debt crisis and Greece defaulting, Quantitative Easing, Solvency II in December 2012 and unisex rates in January 2013. It is difficult to see a positive in 2012 for pension annuity rates.

Rates for 2013-2015:
With the economy over the worst of the slowdown currently being experienced 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 will rise and as a result annuity rates will increase from what may be the lowest levels reached sometime in 2012.