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31 January 2012 last updated
Annuity Rates - January 2012 review
Annuity rates fall with continued uncertainty in the Eurozone

Annuity rates were mainly negative across the board with standard annuities down by an average of 0.45% and smoker annuities decreasing by an average of 0.26%.

The annuity rates market was showed that 56% of annuity rates were unchanged, 39% decreased and only 5% increased.

The data is based on a £100,000 fund for a male, female and joint and with different features such as 10 year guaranteed period and level.

With the Eurozone debt crisis still unresolved and uncertain gilt yields reduced to thier lowest level for the end of a month with a yield of 2.43% which helped to drag down annuities.

Annuity Rates Review January 2012
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Lower annuity rates for January

Find out more: gilt yields for January

Fig 1 below shows the
annuities changes for the whole market and the proportion that have either decreased, increased, or unchange as well as the degree of increases or decreases of pension annuity rates for 1 month ending 31st January 2012:

Annuity Rates January Changes
Increase No change Decrease
annuity rates no change   5%
annuity rates no change   56%
annuity rates decrease   39%
Increases of:
0.5 - 2.5%

  Decreases of:
0.2% - 2.9%
  Fig 1: Annuity rate changes for the whole market ending Jan 2012

Fig 1 above shows that for the start of the year half the annuity rates were unchanged and of those that decreased the range of rate falls was between 0.2% and 2.9%. The standard annuity rates decreased by small amounts averaging 0.45% or were unchanged whereas more of the smoker annuity rates remained unchanged with an average decrease of 0.26%.

Fig 2 below for a fund of £100,000 shows the change in annuity rates for females, males and joint life from age 55 to 75 with annuity options such as level or 3% escalation over 1 month ending 31st January 2012:

Annuity Rate Changes - Standard
  Male * Female * Joint
annuity rates down   0.38%
annuity rates down   0.26%
annuity rates down   0.65%
Level + 10 yr
100% joint **
annuity rates down   0.29%
annuity rates down   0.26%
annuity rates down   0.70%
3% escalation
annuity rates down   0.60%
annuity rates down   0.35%
annuity rates down   0.62%
Annuity Rate Changes - Smoker
  Male * Female * Joint
gilt yields no change   0.00%
gilt yields no change   0.00%
annuity rates up   0.83%
Level + 10 yr
100% joint **
annuity rates up   0.05%
gilt yields no change   0.00%
annuity rates up   0.81%
3% escalation
gilt yields no change   0.00%
annuity rates down   0.01%
annuity rates down   0.64%
  Fig 2: Annuity rate changes for 1 month ending 31 Jan 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 highest decreases of 1.6% were for Joint life annuities and ages between 55 and 65 with features including level, escalating, 50% and 100% spouse's benefit. Most standard rates for single life for both males and females were unchanged from age 65 to 75.

For smoker pension annuity rates the significant change was for joint life annuities that either decreased or increased. The increases were from 100% joint life aged 60 to 75 increasing between 0.5% to 2.5% and the decreases were from 50% joint life level and 3% escalating aged between 55 and 70. For those aged around 75 the annuity rates increased slightly.

Whether annuity rates increase or decrease depends eventually on gilt yields and in particular the 15-year gilt yields. A 20 basis point reduction in the 15-year gilt yields would result in roughly a 2.0% reduction in annuity rates. Over the past three months gilt yields have decreased by 47 basis points or roughly a 4.7% decrease in annuity rates can be expected.

However, standard annuity rates have actually decreased by 1.64% on average suggesting that they have further to fall and this could be by 3.06% unless gilt yields increase in February. For smoker rates the decrease has been 2.53% suggesting that they have further to fall and this could be by 2.17% unless gilt yields increase in February. Impaired annuity rates have decreased continually during January 2012 so any increase in gilt yields will create extra margin for the providers and they can add this to the annuity rates for particular medical conditions.
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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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