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Annuity Rates September 2011
For annuity rates September 2011 these show standard rates sharply down for the month whereas smoker rates have actually increased slightly. Overall 70% of rates reduced, 3% remained unchanged and 27% increased.
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Overall standard pension annuity rates September are down 3.61% for the month for all male, female and joint annuitants aged 55 to 75 and with three types of annuity features selected, level, level with a 10 year guaranteed period and 3% escalation. This compares to the 15-year gilt yields which have reduced by 43 basis points down to 2.91%.
Fig 1 below shows the annuity rates UK over the last 12 months and the final rate for 30th September 2011:
| Annuity Rates for £100,000, male, age 65, single, level |
| Latest rate: |
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1 month change: |
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1 year change: |
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| £6,101 pa |
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£274 / 4.3% |
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£344 / 5.3% |
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Our benchmark example shows a decrease in annuity rate to £6,101 pa, a fall of £274 pa or 4.3% which matches the gilt yield fall of 43 basis points for September. Compared to a year ago the fall is £344 pa or 5.3%.
Fig 2 below shows the change in latest annuity rates UK over 7 years compared to 30th September 2011, based on £100,000,male, age 65, single and level:
| Latest rate: |
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6 month change: |
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3 year change: |
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| £6,101 pa |
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£644 / 9.5% |
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£1,627 / 21.5% |
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The above Fig 2 chart shows that the annuity rate at 30th September was £274 pa less than the previous month, £644 pa less than six months ago and £1,627 pa less than three years ago. Compared to the highest annuity rate in recent times achieved in July 2008, today's rate is £1,807 pa or 22.8% lower. This is a significant loss to pensioners considering the increase in inflation since 2008.
The 15-year gilt yields are important for annuity rates September as providers use these investment instruments together with corporate bonds and mortality cross subsidy to fund the income paid to pensioners. As a rough guide a 50 basis point change in gilt yields will result in a 5% change in the latest annuity rates. For September 15-year gilt yields have reduced by 43 basis points which means the standard rates would be reduced by about 4.3% for the month and they are slightly less than this amount.
Annuity Rates September Changes
Of the total annuity rates market for September only 3% of annuity rates did not change, based on a fund of £100,000 from male, female and joint and with different features such as level and escalating. The other 97% either increased or decreased with the majority decreasing significantly.
Fig 3 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 increases or decreases of the annuity rates over 1 month ending 30th September 2011:
| Annuity Rates Market Changes |
| Increase |
No change |
Decrease |
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27% |
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3% |
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70% |
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Increases of:
0.5% - 1.0%
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Decreases of:
2.5% - 5.5% |
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Fig 3: Annuity rates changes for the whole market ending Sept 2011 |
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Fig 3 above shows that for September there was a strong downward movement with 70% of annuity rates decreasing with significant falls of between 2.5% and 5.5%. Although 27% of annuities increased the rise was small at between 0.5% and 1.0% and all of these were from providers of smoker annuity rates.
Fig 4 below shows for a fund of £100,000 the change in annuity rates for males, females and joint from age 55 to 75 with different annuity options such as level or escalating over 1 month ending 30th September 2011:
| Annuity Rate Changes - Standard |
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Male |
Female |
Joint |
| Level |
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3.47% |
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3.24% |
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3.60% |
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Level +
10 yr guarantee |
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3.78% |
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3.41% |
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3.51% |
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| 3% escalation |
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4.26% |
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3.36% |
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3.99% |
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| Annuity Rate Changes - Smoker |
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Male |
Female |
Joint |
| Level |
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0.55% |
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0.16% |
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0.03% |
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Level +
10 yr guarantee |
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0.52% |
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0.35% |
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0.24% |
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| 3% escalation |
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0.65% |
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0.05% |
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0.35% |
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Fig 4: Annuity rates change for 1 month ending 30 Sept 2011 |
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Standard annuities have reduced by similar amounts except for male 3% escalating rates that have reduced by a greater amount of 4.26% from August. Smoker annuity rates on the other hand have increased slightly overall by 0.26% and this increase is due to providers of smoker rates, in particular Liverpool Victoria, being very competitive across the board for september.
Throughout September the Eurozone debt crisis has been responsible for the volatility on the equity markets and this in turn has seen investments seeking safer locations such as UK gilts and ultimately the reduction in annuity rates.
Outlook for September 2011
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As at 30th September 2011, if the Eurozone debt crisis continues there is considerable uncertainty about the future of annuity rates. It is likely that the situation will remain volatile and pensioners about to purchase a lifetime annuity should first secure their pension funds by switching to cash (if they are in equities) to protect against a sudden fall in fund value while transferring to an open market option.
In the short term annuity rates may remain at their current level as Greece bailout plans give confidence to equities and recover in the gilt yield. However, continued uncertainty would mean further falls in annuity rates at some point so your pension fund needs to be transferred within the quote guaranteed period for the fund to avoid a lower rate when the funds are received. Make sure you have the discharge / open market option form complete before applying for an open market option for the fastest transfer time.
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Annuity Rates September and Gilts
The Latest annuity rates will follow the direction of the 15-year gilt yields although this will not be exact. There may be a delay before they fall or rise as other factors will be acting on providers such as competition and internal targets for a certain amount of annuity business for the period.
Fig 5 below shows the change in 15-year gilt yields over the last 12 months and the current rate for 30th September 2011:
| 15-Year Gilt Yields over 1 year |
| Latest rate: |
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1 month change: |
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1 year change: |
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| 2.91% |
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0.43% |
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0.59% |
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The 15-year gilt yields have reduced sharply for September 2011 from 3.34% on 31 August 2011 to 2.91% on 30 September 2011. This decrease has been due to a number of global factors that have created uncertainty about the direction of world economies and the threat of recession returning and in particular the Eurozone debt crisis that has been a significant factor.
As European ministers failed to provide assurances over the outcome of debt owed by Greece and the threat of default, this has resulted in investments moving to Government gilts of safer countries such as the UK. As the value of gilts rise the yield falls and pensioners taking annuities are threatened with lower annuity rates.
Fig 6 below shows the daily 15-year Gilt Yield and the increase or decrease from the previous day:
| 15-Year Gilt Yields - September 2011 |
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Thurs 1st |
Fri 2nd |
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| 3.25% |
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0.09 |
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| 3.17% |
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0.08 |
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| Mon 5th |
Tues 6th |
Wed 7th |
Thurs 8th |
Fri 9th |
| 3.02% |
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0.15 |
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| 3.02% |
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| 3.07% |
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0.05 |
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| 3.08% |
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0.01 |
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| 2.98% |
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0.10 |
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| Mon 12th |
Tues 13th |
Wed 14th |
Thurs 15th |
Fri 16th |
| 2.90% |
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0.08 |
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| 2.91% |
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0.01 |
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| 2.93% |
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0.02 |
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| 2.98% |
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0.05 |
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| 3.00% |
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0.02 |
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| Mon 19th |
Tues 20th |
Wed 21st |
Thurs 22nd |
Fri 23rd |
| 2.91% |
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0.09 |
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| 2.92% |
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0.05 |
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| 2.95% |
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0.03 |
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| 2.85% |
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0.10 |
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| 2.87% |
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0.02 |
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| Mon 26th |
Tues 27th |
Wed 28th |
Thurs 29th |
Fri 30th |
| 2.93% |
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0.06 |
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| 3.04% |
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0.11 |
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| 3.00% |
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0.04 |
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| 3.02% |
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0.02 |
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| 2.91% |
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0.11 |
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Fig 6: Daily 15-year gilt yields and changes |
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Fig 6 above shows that although gilts have risen on more days during September than they have fallen, the falls have been particularly large pushing the 15-year gilt yields to a low of 2.85%, down 49 basis points compared to August.
Daily Updates for September 2011
Fri 30th Sept 2011
Gilt yields down 43 basis points from August.
09:05: As a close to September the gilt yields have reduced today by 11 basis points to 2.91% to 43 basis points down on August which is a significant fall. This decrease reflects uncertainty in Europe and although providers have kept annuity rates level over recent days we may see short term rate falls during the first week of October. This means that during September annuity rates should be down about 4.3% and a full analysis of the month will appear in the September 2011 report shortly.
Thurs 29th Sept 2011
German Parliament has little effect on gilts.
19:05: Gilt yields have moved up only 2 basis points to 3.02% after the German Parliament approve the bailout plan. There has been no changes to the latest annuity rates across the board and providers are in are in a passive stance waiting to see. With stock markets experiencing the worst quarter since 2008 and investments seeking safety of gilts the yields have reached an all time low.
Wed 28th Sept 2011
Latest annuity rates show some decreases.
09:18: Gilt yields reduced to 3.00% at yesterdays close or 4 basis points down on the previous day significant increase. As a result the latest annuity rates are generally unchanged with the exception of males aged 65 to 75 with decreases from only £9 pa to £46 pa or 0.5% for older annuitants mainly due to Aviva reducing their rates. Older females aged 70 to 75 have seen a small increase of 0.3% in their rates.
The German Parliament are voting today on measures to fund the European debt and the outcome of this could see more confidence and stability in the annuity market. A positive outcome would see gilt yields increase although uncertainty will remain for Europe if the bailout is enough so gilts main remain volatile for the short to medium term.
Tues 27th Sept 2011
Gilt yields recover with Eurozone debt plans.
20:29: There has been three days of improving gilt yields after a fall to the lowest level so far recorded of 2.85%. The 10 basis point reduction has been recovered with a rise of 17 basis points to 3.04% and the rise today of 11 basis points is the largest for a single day during September. This was after news from the Eurozone of more definite plans for European debt. Despite the rises this has only reduced the pressure for decreasing the latest annuity rates with the short term outlook remaining volatile.
Providers may wait to see how the European debt situation evolves and not change the latest annuity rates. |
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| Annuity Rates |
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Age |
Males |
Females |
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55 |
£4,982 |
£4,772 |
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60 |
£5,400 |
£5,157 |
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65 |
£6,009 |
£5,731 |
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70 |
£6,835 |
£6,533 |
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| £100,000 purchase, level rates, standard single life |
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