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29 February 2012 last updated
Annuity Rates - February 2012 review

Increasing gilt yields and equities are good news for pensioner annuities

This month has seen gilt yields increase by 16 basis points for the first time since June 2011. This coupled with improving equities will boost annuity income for pensioners at retirement.

Annuity rates showed some strong increases with 47% of annuities increasing, 48% remaining unchanged and only 5% decreased. These figures are based on a fund of £100,000 from male, female and joint and with different features such as level and escalating.

Despite the increase in gilt yields the Bank of England voted for another £50 billion Quantitative Easing bringing the total to £325 billion and as this has the tendency of reducing yields on gilts it may mean annuity rates will decrease at some stage in the next few months.

Annuity Rates Review February 2012
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Strong increase for standard rates during February

Find out more: gilt yields for February

Fig 1 below shows the latest 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 29th February 2012:

Annuity Rates Market Changes
Increase No change Decrease
annuity rates no change   47%
annuity rates no change   48%
annuity rates decrease   5%
Increases of:
0.4 - 3.0%

  Decreases of:
0.5% - 4.0%
  Fig 1: Annuity rates changes for the whole market ending Feb 2012

Fig 1 above shows that annuities have recovered strongly with increases in the range of between 0.4% and 3.0%. The standard annuity rates virtually all increased as Legal & General, Aviva and Hodge Life increased their rates and only Canada Life made no change for the standard annuities.

Of the smaller number of annuities that decreased representing 5% overall, these changes were wide ranging from 0.4% to 4.0%. The majority of the 48% of unchanged rates were from smoker annuity providers such as Liverpool Victoria.

Fig 2 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 29th February 2012:

Annuity Rate Changes - Standard
  Male * Female * 50% Joint
Level only
annuity rates up   1.20%
annuity rates up   0.53%
annuity rates up   1.14%
Level + 10 yr
100% joint **
annuity rates up   0.38%
annuity rates up   0.38%
annuity rates up   1.19%
3% escalation
annuity rates up   1.10%
annuity rates up   0.84%
annuity rates up   1.12%
Annuity Rate Changes - Smoker
  Male * Female * 50% Joint
Level only
gilt yields no change   0.00%
gilt yields no change   0.00%
annuity rates up   0.39%
Level + 10 yr
100% joint **
gilt yields no change   0.00%
gilt yields no change   0.00%
annuity rates up   1.60%
3% escalation
gilt yields no change   0.00%
gilt yields no change   0.00%
annuity rates up   0.30%
  Fig 2: Latest annuity rates change for 1 month ending Feb 2012
  * Male and female on a single life basis only
  ** Joint life option is level, 100% spouse benefit and no guarantee

For standard annuities the average increase was 1.0% with many rates increasing by 1.7% across the board from age 55 to 65 for males, females and joint annuitants. For the ages around 70 the range was either no change or up about 1.2% and for ages around 75 there was no change. Smoker annuities did not change for single life males and females but joint life annuities all changed with the largest decrease for 100% joint life of up to 4.0% at age 70 to 75 annuitants while other smoker annuities increased about 1.1% for younger ages of 55 to 65.

Annuity rates depend on gilt yields and in particular the 15-year gilt yields. If yields increase by 10 basis points this would result in roughly a 1.0% rise in annuity rates. Over three months gilt yields have decreased by 11 basis points or a 1.1% decrease in annuity rates expected. Standard annuities increased by 1.61% by comparison suggesting that they have further to fall by 2.71%. For smoker annuities the decrease has been 1.26% so they could increase by 0.17%. Impaired annuity rates have has a mixed February with increases at the beginning of the month and decreases towards the end. Impaired annuities could improve by about 0.6% although any increase in yields means more margin for the providers to improve annuities.
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Annuity Rates
  Age Single Joint  
  55 £4,273 £4,019  
  60 £4,695 £4,418  
  65 £5,361 £4,913  
  70 £6,172 £5,708  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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