Annuity Pay Index Rises

Rising interest rates have helped push payment yields for income annuities to their highest levels in nearly six months, according to an annuity pricing and analysis service.

A person investing $100,000 into an immediate income annuity on March 29 can expect to receive, on average, about $530 per month for a yield of 6.37 percent.

That represents an increase of about $20 per year over what the average annuitant would have received for an identical annuity investment on Feb. 22, according to the CANNEX Payout Annuity Yield Index – or PAY Index.

On Oct. 26, 2016, the last reporting period before the November election, that same $100,000 annuity would have paid out $502 per month for a yield of 6.03 percent, based on the CANNEX benchmark.

On March 29, the CANNEX PAY Index for a single life annuity stood at 7.35 percent for a 70-year-old male and 6.10 percent for a 65-year-old female, and 5.65 percent for a joint life annuity for a male age 70 and a female age 65.

“As you can imagine, there is usually high correlation (of income annuity rates) to interest rate movement,” said Gary Baker, president of CANNEX USA.

In March, the Federal Reserve raised the short-term benchmark interest rate by a quarter percent on the heels of a similar increase in December.

Markets have reacted positively to the election of Donald J. Trump with stock indexes reaching all-time highs earlier this year – which analysts have taken to call the “Trump bump.”

With the unemployment rate continuing to drop, the Federal Reserve has signaled that several interest rates hikes might be in the offing in 2017.

Slowly rising rates are good for fixed annuities because it means insurers can raise the payouts and annuitants receive more in their pockets.

Annuity yields have been going up since last summer.

Though interest rates often move in lockstep with the Federal Reserve benchmark, they sometimes lag or do not move as much depending upon how carriers choose to manage their risk for fixed-income products.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].