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6 July 2017 last updated
Gilt yields rise sharply as ECB signals end to quantitative easing
15-year gilt yields chart
Based on figures for June 2017
Latest gilt yield chart
 

The 15-year gilt yields have increased sharply as the European Central Bank signals the end of the €1.1 trillion programme started in January 2015 as European growth prospects improve.

Standard rates:  
annuity rates up 2.25%
Enhanced rates:  
annuity rates up 1.84%
Gilt yields:  
annuity rates up 19 basis point



 
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Annuity rates rise with higher yields

The 15-year gilt yields increased by 19 basis points to 1.62% during the month with 24 basis points added in the last four days following the ECB President Mario Draghi statement.

He stated the factors suppressing inflation are short term implying the €1.1 trillion quantitative easing (QE) programme would be stopped by the end of the year with investors selling gilts and bonds sending the price down and yields higher.

Yields are 19 basis points higher with standard providers increasing rates by an average of 2.25% and we would expect rates may decrease by -0.35% in the short term.

For smoker and enhanced annuity providers increased their rates by an average of 1.85% on average and rates may decrease by -0.06% in the short term.

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 decrease   91%
annuity rates no change   2%
annuity rates decrease   7%
Increases of:
up to 3.6%

  Decreases of:
up to 0.8%
  Fig 1: Annuity rate changes for the whole market


For the month of June 91% of annuity rates increased by up to 3.6% with 2% remaining unchanged and only 7% decreasing.

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 increased by an average of 2.25% during the month. Virtually all age groups experienced a strong rise except those aged 75 on a level basis with falls of up to 0.8%.

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 increased rates across the board with an average rise of 1.84%. Only a few age groups with small improvements such as joint life aged 75 for both level and escalating and those aged 65 to 70 single life on a level basis.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month from 1.43% to 1.62% or 19 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 - June 2017
Day Rate (%) Change (bp*)
1 1.46 +3
2 1.44 -2
5 1.44 0
6 1.39 -1
7 1.40 +1
8 1.43 +3
9 1.41 -2
12 1.38 -3
13 1.45 +6
14 1.42 -3
15 1.44 +2
16 1.42 -2
19 1.42 0
20 1.39 -3
21 1.41 +2
22 1.38 -3
23 1.40 +2
26 1.38 -2
27 1.46 +8
28 1.51 +5
29 1.61 +10
30 1.62 +1
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points


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Annuity Rates
  Age Single Joint  
  55 £4,216 £3,974  
  60 £4,702 £4,423  
  65 £5,453 £5,013  
  70 £6,105 £5,482  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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