Annuity rates are currently at historically low levels because:

• A. AAA rated government bond yields are so low
• B. deposit rates are so low
• C. equity markets are so high
• D. very few people are buying annuities

Answer: (C)

Annuity rates reflect the returns insurers can lock in to fund future guaranteed payments, so the main driver is the level of long-term interest rates, especially high-quality bond yields. When those yields are low, the amount you can pay out per unit of purchase money is reduced, leading to historically lower annuity rates.

If equity markets are very high, it signals a broadly favorable but low-yielding environment in which central banks often keep rates low and long-dated bond yields stay depressed. That combination lowers the discount rate used to price future payments, which in turn pushes annuity payouts down. So, the high equity market backdrop is associated with the low-yield environment that drives down annuity rates.

The other factors—very low government bond yields, lower deposit rates, or changes in demand for annuities—also influence rates, but the statement points to the overarching market condition (equities being high, reflecting the low-yield environment) as the best explanation for why annuity rates are so low.