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4 December 2015 last updated
Impaired providers reduce rates beyond the fall in yields
15-year gilt yields chart
Based on figures for November 2015
15-year gilt yields October 2015

Providers of impaired annuities have reduced their rates by up to 6% in the month beyond the fall in 15-year gilt yields ahead of EU Solvency 2 legislation starting in january 2016.

Standard rates:  
annuity rates up 0.46%
Enhanced rates:  
annuity rates up 1.90%
Gilt yields:  
annuity rates up 6 basis point

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Impaired rates 6% lower ahead of Solvency 2

For the fifth month in a row providers of impaired annuities have reduced rates and during the month of October by an average of 1.9%. For some specific medical conditions, ages and annuity features from Just Retirement, Liverpool Victoria and Partnership rates are lower by up to 6%.

Although the 15-year gilt yields have reduced by only 6 basis points, impaired, enhanced and smoker rates are significantly lower.

Providers are using the Solvency 2 legislation as a reason for further falls in rates. Solvency 2 requires providers to strengthen their balance sheets by retaining more capital to protect policyholders from future uncertainty.

Standard providers lowered rates by 0.46% and we would expect to see a annuities to reduce by a further 1.90% in the long term.

Smoker and enhanced annuity providers decreased their rates by 1.90% on average and in the long term rates may rise by 0.2%.

Equity markets started at 6,361 and decreased by 5 points to end at 6,356.

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
annuity rates increase   32%
annuity rates no change   7%
annuity rates decrease   61%
Increases of:
up to 3.8%

  Decreases of:
up to 6.0%
  Fig 1: Annuity rate changes for the whole market

The majority of rates increased with 32% rising, 7% remaining unchanged and 61% decreasing.

What happened to standard rates

Below shows a fund of £100,000 with the change in standard annuity rates for single and joint pensioners from age 55 to 75 with different annuity options such as level or escalating over 1 month compared to gilt yields:

Standard annuity 1 month changes
Fig 2: Change in standard rates last month compared to gilt yields

Standard annuities was mixed with 40% of annuities reducing and 60% increasing. The highest increase of 3.8% was for 3% escalating, single life aged 55 although most escalating rates decreased. Annuities for 100% joint life and level all increased by an average of 1.7%. The largest decrease was 5.7% for level, single life aged 75.

What happened to enhanced rates

Lifestyle smoker and enhanced annuities have decreased significantly across the board for all types of annuities and ages.

Enhanced annuity 1 month changes
Fig 3: Change in enhanced rates last month compared to gilt yields

For enhanced and smoker providers rates virtually all rates decreased and in some cases significantly by up to 6%. The providers are reducing their rates ahead of the Solvency II legislation even though the changes have been expected for three years and rates have already been discounted over this time.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 2.23% to 2.17% or 6 basis points. Fig 2 below shows the daily 15-year gilt yields and the increase or decrease from the previous day's close:

15-Year Gilt Yields - November 2015
Mon 2nd Tues 3rd Wed 4th Thurs 5th Fri 6th
gilt yields up   0.03
gilt yields up   0.05
gilt yields up   0.01
gilt yields down   0.02
gilt yields up   0.05
Mon 9th Tues 10th Wed 11th Thurs 12th Fri 13th
gilt yields up   0.01
gilt yields down   0.02
gilt yields up   0.04
gilt yields down   0.05
gilt yields down   0.02
Mon 16th Tues 17th Wed 18th Thurs 19th Fri 20th
gilt yields down   0.02
gilt yields no change
gilt yields down   0.03
gilt yields down   0.03
gilt yields up   0.01
Mon 23rd Tues 24th Wed 25th Thurs 26th Fri 27th
gilt yields down   0.01
gilt yields down   0.02
gilt yields up   0.01
gilt yields down   0.03
gilt yields down   0.01
Mon 30th        
gilt yields up   0.01
  Fig 2: Daily 15-year gilt yields and changes

News related stories:
Gilt yields and equities fall as Federal Reserve unclear about rate rise
Best annuities could rise as Federal Reserve delays raising rates
UK annuities could rise as gilt yields make strong recovery
Annuity Rates
  Age Single Joint  
  55 £3,947 £3,702  
  60 £4,391 £4,052  
  65 £5,098 £4,638  
  70 £6,055 £5,457  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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