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7 May 2018 last updated
Gilt yields fall back as interest rate rise for May looks unlikely
15-year gilt yields chart
Based on figures for April 2018
Latest gilt yield chart
 

Gilt yields fall back after poor figures for the first quarter show UK growth is the slowest rate since 2012 making a rise in interest rates for May unlikely.

Standard rates:  
annuity rates change 0.92%
Enhanced rates:  
annuity rates change 1.30%
Gilt yields:  
annuity rates change 9 basis point



 
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Providers reduce rates expecting lower yields

Annuity providers reversed the push for higher rates as the expectation of higher yields diminished following poor UK growth figures for the first quarter and falling inflation. This makes it unlikely the Bank of England would raise base rates in May sending 15-year gilt yields lower.

The 15-year gilt yield increased by 9 basis points to 1.67% during April 2018 with providers of standard annuities decreasing by an average -0.92% for this month and we would expect rates to rise by 1.82% in the short term if yields do not fall.

For smoker and enhanced annuity providers have decreased their rates by an average of -1.30% and rates may rise by 2.20% 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   36%
annuity rates no change   9%
annuity rates decrease   55%
Increases of:
up to 3.0%

 

Decreases of:
up to -6.8%

  Fig 1: Annuity rate changes for the whole market


For the month of February 36% of annuity rates increased by up to 3.0% with 9% remaining unchanged and 55% decreasing by up to -6.8%.

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 -0.92% during the month. The largest rise was for those aged 55 based on a 50% joint life rates and 3% escalation up by 3.08% for the month with the largest decrease for those aged 75 on a single life and 3% escalation basis down -6.86%.

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 -1.30% for the month on average. The largest rise was for those aged 55 based on a 50% joint life and 3% escalation basis up by 2.53% for the month with the largest decrease for those aged 70 on a single life and 3% escalating basis down -6.25%.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month from 1.58% to 1.67% or +9 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 - April 2018
Day Rate (%) Change (bp*)
3 1.60 +2
4 1.62 +2
5 1.67 +5
6 1.64 -3
9 1.65 +1
10 1.66 +1
11 1.62 -1
12 1.68 +6
13 1.66 -2
16 1.69 +3
17 1.67 -2
18 1.67 0
19 1.76 +9
20 1.73 -7
23 1.79 +6
24 1.79 0
25 1.78 -1
26 1.74 -4
27 1.70 -4
30 1.67 -3
  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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