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9 March 2017 last updated
Gilt yields fall as investors react to political uncertainty in Europe
15-year gilt yields chart
Based on figures for February 2017
Latest gilt yield chart
 

Uncertainty about European politics sees investors buy gilts and bonds sending the price higher and yields lower with annuity rates falling from their recant high for the year.

Standard rates:  
annuity rates up 1.91%
Enhanced rates:  
annuity rates up 0.51%
Gilt yields:  
annuity rates up 29 basis point



 
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Annuities fall after five month run of increases

The 15-year gilt yields decreased by 29 basis points to 1.50% during the month and the lowest point since October 2016. Gilt yields reduced due to uncertainty over political uncertainty in Europe, wage data in the US pointing to lower inflation and worries over President Trump's economic policies.

Standard providers decreased rates by an average of -1.91% and we would expect in the short term rates may decrease further by -0.99%.

For smoker and enhanced annuity providers increased their rates by an average of -0.44% on average and in the short term rates may increase by -2.46%.

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   38%
annuity rates no change   3%
annuity rates decrease   59%
Increases of:
up to 4.3%

  Decreases of:
up to 3.6%
  Fig 1: Annuity rate changes for the whole market


For the month of February 38% of annuity rates increased by up to 4.3% with 3% remaining unchanged and 59% decreasing by no more than 3.6%.

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 decreased by an average of -1.91% during the month. For those aged 55 to 60 buying a single life or joint life on a level basis with decreases of up to -3.6%. The highest increase was for those aged 55 with 50% joint life and 3% escalating rate increasing by 4.3%.

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 rates decreased by an average of -0.44% with a larger fall of -3.2% for those aged 55 to 60 buying 50% joint life, level annuity. The highest increase was for those aged 55 with 50% joint life and 3% escalating rate increasing by 3.0%.


For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 1.79% to 1.50% or 29 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 - February 2017
Day Rate (%) Change (bp*)
1 1.82 +3
2 1.78 -4
3 1.76 -2
6 1.73 -3
7 1.70 -3
8 1.63 -7
9 1.65 +2
10 1.67 +2
13 1.70 +3
14 1.72 +2
15 1.71 -1
16 1.67 -4
17 1.63 -4
20 1.66 +3
21 1.66 0
22 1.64 -2
23 1.59 -5
24 1.51 -8
27 1.51 0
28 1.50 -1
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
Annuity income increases up to 18% in five months since all time low
Annuities up 7% as yields recover after election of Donald Trump
Enhanced annuity rates up 2.4% as gilt yields recover from Brexit
UK annuities could rise 5% as US bond selloff sends yields higher
Annuity Rates
  Age Single Joint  
  55 £4,066 £3,782  
  60 £4,544 £4,240  
  65 £5,246 £4,794  
  70 £6,045 £5,433  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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