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3 August 2018 last updated
Gilt yields bounce back as Bank of Japan reviews stimulus
15-year gilt yields chart
Based on figures for July 2018
Latest gilt yield chart

The Bank of Japan may take steps to tweak its monetary policy and reduce stimulus for the first time since 2016 causing investors to sell bonds globally.

Standard rates:  
annuity rates change 1.30%
Enhanced rates:  
annuity rates change 0.41%
Gilt yields:  
annuity rates change 3 basis point

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Gilt yields rise 3 basis points for the month

The 15-year gilt yields are higher by 3 basis points during the month after reaching to 1.47% and recovering back to 1.61%. The rise in yields was due to investors selling bonds around the world after Japan's central bank, the Bank of Japan, reviewed its monetary policy with the intention of reducing stimulus to increase inflation.

A similar stance was taken last month from the European Central Bank (ECB) indicating the end of the asset purchase programme expected now in the summer of 2019.

The 15-year gilt yield increased by 3 basis points to 1.59% during July 2018 with providers of standard annuities decreasing rates by an average -1.30% for this month and we would expect rates to rise by 1.60% in the short term if yields do not fall.

For smoker and enhanced annuity providers have decreased their rates by an average of -0.41% and rates may rise by 0.71% in the short term if yields do not fall.

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   20%
annuity rates no change   12%
annuity rates decrease   68%
Increases of:
up to 2.1%


Decreases of:
up to -5.4%

  Fig 1: Annuity rate changes for the whole market

For the month of February 20% of annuity rates increased by up to 2.4% with 12% remaining unchanged and 68% decreasing by up to -5.4%.

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 -1.30% during the month. The largest rise was for those aged 75 based on a single life with 3% escalation down by 5.4% for the month with the largest increase for those aged 60 on a single life level basis up 2.1%.

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 the majority of rates decreased by -0.4% for the month on average. The largest rise was for those aged 60 based on a single life level basis up 1.0% for the month with the largest decrease for those aged 60 on a 50% joint life with 3% escalating basis down -2.9%.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month from 1.56% to 1.59% or 3 basis point. 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 - July 2018
Day Rate (%) Change (bp*)
2 1.54 -2
3 1.53 -1
4 1.56 +3
5 1.54 -2
6 1.54 0
9 1.53 -1
10 1.56 +3
11 1.56 0
12 1.55 -1
13 1.55 0
16 1.56 +1
17 1.54 -2
18 1.51 -3
19 1.47 -4
20 1.50 +3
23 1.50 0
24 1.53 +3
25 1.54 +1
26 1.53 -1
27 1.54 +1
30 1.61 +7
31 1.59 -2
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

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Annuity Rates
  Age Single Joint  
  55 £5,025 £4,644  
  60 £5,501 £5,102  
  65 £6,168 £5,832  
  70 £7,003 £6,583  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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