Annuities at risk with volatile gilts due to Covid-19 restrictions in Europe

15-year gilt yields chart - Based on figures for October 2020

October 2020 Review

Gilt yields fall 17 basis points to 0.39% during the month as rsing cases of Covid-19 in Europe has seen greater restrictions in various countries. This is leading to nervous investors looking for the safety of Treasury Notes, Gilts and Bunds sending yields lower.

Gilt yields remain volatile as investors wait for an outcome of the fiscal stimulus deal as negotiations between the Democrats and the Trump administration has continued to make progress.

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The 15-year gilt yields increase by 4 basis points to 0.49% during October after a volatile month.

Providers of standard annuities increased annuity rates by an average of 0.17% for this month and we would expect rates to rise by 0.23% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have reduced their rates by an average of -0.45% and rates and we would expect rates to rise by 0.85% 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   40%   23%   27% Increases of: max 1.5%   Decreases of: max -1.7%

Fig 1: Annuity rate changes for the whole market

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

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