Falling gilt yields send annuities lower to start the new year


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8 January 2018 last updated

Falling gilt yields send annuities lower to start the new year

15-year gilt yields chart

Based on figures for December 2017

Providers reduce the majority of annuities both standard, smoker and enhanced for the start of the new year as the 15-year gilt yields fall 13 basis points.

Standard rates:

1.09%

Enhanced rates:

0.25%

Gilt yields:

13 basis point

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Providers reduce 76% of annuities

The 15-year gilt yield reduce by 13 basis point to 1.50% during the month with providers of standard annuities decreasing rates by -1.09% for this month and we would expect rates to decrease by a further -0.21% in the short term.

For smoker and enhanced annuity providers lowered their rates by an average of -0.25% and rates may decrease by a further -1.05% 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

22%

76%

Increases of:
up to 3.2%

Decreases of:
up to -3.1%

Fig 1: Annuity rate changes for the whole market

For the month of December 22% of annuity rates increased by up to 3.2% with 2% remaining unchanged and 76% decreasing by as much as -3.1%

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:


Fig 2: Change in standard rates last month compared to gilt yields

Standard annuities decreased by an average of -1.09%% during the month. The largest fall was for those aged 55 based on single and joint life for both level and escalating rates decreasing by -2.89% for the month. The largest increase was for those aged 70 on a single life basis up 3.25% for the month.

What happened to enhanced rates

Lifestyle smoker and enhanced annuities have decreased significantly across the board for all types of annuities and ages.


Fig 3: Change in enhanced rates last month compared to gilt yields

For enhanced and smoker the majority of rates decreased by -0.25% for the month on average. The largest fall was for those aged 55 on a 50% joint life, 3% escalation the rates reduced by -3.14% whereas the largest increase was for those aged 60 on a single life 3% escalating basis.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month from 1.63% to 1.50% or 13 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 - December 2017
Day	Rate (%)	Change (bp*)
1	1.55	-8
4	1.60	+4
5	1.58	-2
6	1.55	-3
7	1.57	+2
8	1.60	+3
11	1.53	-7
12	1.54	+1
13	1.53	-1
14	1.48	-5
15	1.45	-3
18	1.46	+1
19	1.53	+6
20	1.56	+3
21	1.58	+2
22	1.56	-2
27	1.50	-6
28	1.51	+1
29	1.50	-1

Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:

Annuity rates rise to highest for the year as yields remain level

Pension annuity providers reduce rates despite interest rate rise

Enhanced annuity rates up as central banks signal interest rate rise

Latest annuity rates could fall as US and North Korea uncertainty grows

Annuity Rates

Age

Single

Joint

£5,736

£5,481

£6,132

£5,880

£6,860

£6,462

£7,678

£7,215

£100,000 purchase, level rates, standard
Unisex rates and joint life basis

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