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3 August 2016 last updated
Annuities continue to fall as S&P downgrades UK credit rating to AA
15-year gilt yields chart
Based on figures for July 2016
Latest gilt yield chart

Annuities have reduced again this month by up to 5.2% with gilt yields falling even further as S&P have downgraded UK credit rating from AAA to only AA sending investors to the security of safe havens.

Standard rates:  
annuity rates up 4.07%
Enhanced rates:  
annuity rates up 3.20%
Gilt yields:  
annuity rates up 20 basis point

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Annuities fall 4% as S&P downgrades credit rating

Credit agency S&P has reduced the UK's credit rating to AA down from AAA following the EU Referendum result as this could now lead to a deterioration in the countries economic performance. Other credit agencies have also acted with Fitch reducing its rating from AA+ to AA and Moody's changing the UK outlook to negative.

The 15-year gilt yields have reduced by 20 basis points this month and standard providers decreased rates by an average of 4.07%. We would expect in the short term rates may increase further by 2.07%.

For smoker and enhanced annuity providers decreased their rates by an average of 3.20% on average and in the short term rates may increase by 1.20%.

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 no change   0%
annuity rates no change   0%
annuity rates decrease   100%
Increases of:

  Decreases of:
up to 5.2%
  Fig 1: Annuity rate changes for the whole market

For the month of July 100% of annuity rates decreased by up to 5.2% following the UK's lower credit rating of AA.

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 decreased by an average of 4.07% during the month with a larger decrease of up to 5.20%% for those aged 55 buying single life level annuities.

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 all rates decreased by an average of 3.20% with a larger decrease of up to 5.21% for those aged 65 buying single life level annuities.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 1.41% to 1.21% or 20 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 - July 2016
Day Rate (%) Change (bp*)
1st 1.37 -4
4th 1.36 -1
5th 1.29 -7
6th 1.28 -1
7th 1.31 +3
8th 1.27 -4
11th 1.30 -3
12th 1.37 +7
13th 1.29 -8
14th 1.33 +4
15th 1.36 +3
18th 1.38 +2
19th 1.37 -1
20th 1.39 +2
21st 1.41 +2
22nd 1.37 -4
25th 1.37 0
26th 1.38 +1
27th 1.28 -10
28th 1.26 -2
29th 1.21 -5
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
Pension annuities lower by 9% over the year from leading providers
UK annuities could gain if Fed increase interest rates in June
Enhanced annuities lower as providers merge to form new group
Best annuity rates reduce by 4% from Just Retirement
Annuity Rates
  Age Single Joint  
  55 £3,723 £3,370  
  60 £4,192 £3,911  
  65 £4,920 £4,378  
  70 £5,769 £5,246  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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