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8 June 2015 last updated
Providers increase annuities in a volatile yields market
15-year gilt yields chart
Based on figures for May 2015
15-year gilt yields May 2015

Providers of both standard and smoker annuities increase their rates during the month as the 15-year gilt yields improve despite a volatile market with uncertainty in Europe over Greece exiting the euro.

Standard rates:  
annuity rates up 2.66%
Enhanced rates:  
annuity rates up 1.10%
Gilt yields:  
annuity rates up 3 basis point

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Annuity rates up over 5% from standard providers

With uncertainty over Greece and a possible exit from the euro volatility has increased in the gilts and bonds market. Even so the 15-year gilt yields ended the month slightly higher and never fell below the starting yield of 2.18% giving annuity providers the confidence to improve rates by over 5% in some cases.

Standard providers were higher by an average of 2.66% and we would expect to see a decrease of 2.36% in the short term and in the medium term of 3 months annuity rates will decrease by 2.53% if yields do not improve further.

Smoker and enhanced annuity providers increased their rates by 1.10% on average with a decrease of 0.80% possible in the short term and in the medium term of 3 months we can expect an increase of 0.96%.

Equity markets started at 6,961 and increased by 23 points to end at 6,984.

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   83%
annuity rates no change   11%
annuity rates decrease   6%
Increases of:
up to 5.7%

  Decreases of:
up to 1.7%
  Fig 1: Annuity rate changes for the whole market

The majority of rates increased with 83% rising, 11% remaining unchanged and 6% 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 increased this month with the highest for single life aged 55 increasing by 5.70% followed by 50% joint life aged 65 with 4.88%. The smallest increases were from 3% escalating rates for single and joint life from age 55 to 70.

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 rates were higher but in particular for single life with a 10-year guaranteed period aged 60 to 75. There were some decreases for single life level and 3% escalating rates of between 1.32% to 1.76%.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 1.18% to 2.21% or 3 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 - May 2015
        Fri 1st
gilt yields up   0.03
Mon 4th Tues 5th Wed 6th Thurs 7th Fri 8th
gilt yields no change
gilt yields up   0.11
gilt yields up   0.01
gilt yields down   0.06
gilt yields down   0.07
Mon 11th Tues 12th Wed 13th Thurs 14th Fri 15th
gilt yields up   0.07
gilt yields up   0.04
gilt yields up   0.03
gilt yields down   0.01
gilt yields down   0.11
Mon 18th Tues 19th Wed 20th Thurs 21st Fri 22nd
gilt yields up   0.07
gilt yields up   0.02
gilt yields up   0.01
gilt yields no change
gilt yields down   0.03
Mon 25th Tues 26th Wed 27th Thurs 28th Fri 29th
gilt yields down   0.05
gilt yields down   0.02
gilt yields up   0.02
gilt yields down   0.06
gilt yields down   0.01
  Fig 2: Daily 15-year gilt yields and changes

News related stories:
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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