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7 July 2020 last updated

Pension annuities fall as Federal Reserve hold rates until 2022

Pension annuities fall
 
Standard rates:  
annuity rates change 1.63%
Enhanced rates:  
annuity rates change 0.80%
Gilt yields:  
annuity rates change 3 basis point
 
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15-year gilt yields chart - Based on figures for June 2020
Latest gilt yield chart

June 2020 Review

The 15-year gilt yields made strong gains earlier in the month rising 16 basis points from 0.40% to to 0.56% as investors send equity markets to the highest level since the lockdown.

However, after the Federal Reserve suggested it would hold rates at a record zero percent and maintain bond buying until 2022 yields reduced eliminating the gains sending standard pension annuities lower by an average -1.63% and enhanced annuity rates down -0.80%.

Yields continued to reduce in the second half of the month following a sell off in equities after markets increased with the FTSE-100 reaching high as 6,472 or 29.6% above the March low of 4,993.

With the rise in Coronavirus cases in the US investors had concerns about the ability of the economy to recover quickly resulting in a return to safe havens and a fall in gilt yields.

Find related news here:
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The 15-year gilt yields rise by 3 basis points to 0.40% during June 2020 after a strong rise earlier in the month.

Providers of standard annuities reduced annuity rates by an average of -1.63% for this month and we would expect rates to fall by -2.03% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have decreased their rates by an average of -0.80% and rates and we would expect rates to increase 1.20% 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   1%
annuity rates no change   4%
annuity rates decrease   94%
Increases of:
max 0.5%

 

Decreases of:
max -2.5%

  Fig 1: Annuity rate changes for the whole market


For the month 1% of annuity rates increased by up to 0.5% with 4% remaining unchanged and 94% decreasing by as much as to -2.5%.

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


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 the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month from 0.37% to 0.40% or 3 basis point. Table 1 below shows the daily 15-year gilt yields and the increase or decrease from the previous day's close:


15-Year Gilt Yields - June 2020
Day Rate (%) Change (bp*)
1 0.41 +4
2 0.41 0
3 0.48 +7
4 0.51 +3
5 0.56 +5
8 0.54 -2
9 0.52 -2
10 0.45 -7
11 0.39 -6
12 0.41 +2
15 0.40 -1
16 0.41 +1
17 0.38 -3
18 0.44 +6
19 0.46 +2
22 0.43 -3
23 0.44 +1
24 0.39 -5
25 0.35 -4
26 0.39 +4
29 0.38 -1
30 0.40 +2
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
Annuities and equity markets rise after successful Covid-19 trials
Equity markets surge 15% as US Senate agrees $2tn stimulus package
Retirement income at decade low with panic selling on equity markets
Annuity Rates
  Age Single Joint  
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  60 £4,102 £3,823  
  65 £4,825 £4,358  
  70 £5,675 £5,156  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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