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8 June 2018 last updated
Large fall in gilt yields as Italy crisis sends investors to safe havens
15-year gilt yields chart
Based on figures for May 2018
Latest gilt yield chart
 

The crisis in Italy over the coalition government and uncertainty of their policies has panicked investors selling Italian bonds and moving funds to safe havens.

Standard rates:  
annuity rates change 1.36%
Enhanced rates:  
annuity rates change 1.09%
Gilt yields:  
annuity rates change 9 basis point



 
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Gilt yields fall 31 basis points over Italy crisis

The 15-year gilt yields are lower by 31 basis points during the month after reaching a high of 1.81% and reducing a low of 1.50%. If a political solution can be found providers of annuities can defer a downward movement in rates in anticipation of a recovery in gilt yields over time with little impact on people retiring.

The 15-year gilt yield decreased by -14 basis points to 1.67% during May 2018 with providers of standard annuities increasing rates by an average 1.36% for this month and we would expect rates to fall by -2.76% in the short term if yields do not fall.

For smoker and enhanced annuity providers have increased their rates by an average of 1.09% and rates may fall by -2.49% 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   60%
annuity rates no change   4%
annuity rates decrease   36%
Increases of:
up to 6.8%

 

Decreases of:
up to -1.1%

  Fig 1: Annuity rate changes for the whole market


For the month of February 60% of annuity rates increased by up to 6.8% with 4% remaining unchanged and 36% decreasing by up to -1.1%.

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:

Standard annuity 1 month changes
Fig 2: Change in standard rates last month compared to gilt yields


Standard annuities increased by an average of 1.36% during the month. The largest rise was for those aged 55 based on a single life with 3% escalation up by 6.8% for the month with the largest decrease for those aged 55 to 75 on a single life and 3% escalation basis down -0.65%.

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 increased by 1.09% for the month on average. The largest rise was for those aged 55 based on a single life up by 5.4% for the month with the largest decrease for those aged 60 on a single life basis down -1.1%.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month from 1.67% to 1.53% or -14 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 - May 2018
Day Rate (%) Change (bp*)
1 1.67 0
2 1.71 +4
3 1.66 -5
4 1.67 +1
7 1.67 0
8 1.71 +4
9 1.72 +1
10 1.70 -2
11 1.71 +1
14 1.73 +2
15 1.77 +4
16 1.76 -1
17 1.81 +5
18 1.76 -5
21 1.74 -2
22 1.78 +4
23 1.71 -7
24 1.68 -3
25 1.61 -7
29 1.50 -9
30 1.55 +5
31 1.53 -2
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points


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Annuity Rates
  Age Single Joint  
  55 £4,358 £4,209  
  60 £4,839 £4,644  
  65 £5,613 £5,193  
  70 £6,292 £5,860  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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