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3 July 2015 last updated
Smoker and enhanced rates make strong gains as yields remain high
15-year gilt yields chart
Based on figures for June 2015
15-year gilt yields June 2015
 

Smoker and enhanced annuities increase by up to 8.0% after yields rise and remain high during the month following the sell off of EU and US bonds.

Standard rates:  
annuity rates up 1.69%
Enhanced rates:  
annuity rates up 5.21%
Gilt yields:  
annuity rates up 19 basis point



 
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Strong rise in rates from enhanced providers

Providers of smoker and enhanced annuities aggressively increase rates by up to 8.0% as the 15-year gilt yields remain high during the month and up 19 basis points for the month.

Yields improved after bond markets were hit around the globe as the European Central Bank (ECB) expected the eurozone's recovery to continue. Investors sold bonds lowering the price with the 10-year German Bunds gaining 19 basis points leading the 10-year US Treasury notes rising 10 point gain. The world markets are being driven by Europe after the ECB launched quantitative easing.

Standard providers were higher by an average of 1.69% and we would expect to see an increase of 0.21% in the short term and in the medium term of 3 months annuity rates will decrease by 0.45% if yields do not improve further.

Smoker and enhanced annuity providers increased their rates by 5.21% on average with a decrease of 3.31% possible in the short term and in the medium term of 3 months we can expect a decrease of 3.31%.

Equity markets started at 6,984 and increased by 463 points to end at 6,521 after concerns over a Greek default.

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 increase   98%
annuity rates no change   0%
annuity rates decrease   2%
Increases of:
up to 8.0%

  Decreases of:
up to 0.5%
  Fig 1: Annuity rate changes for the whole market


The majority of rates increased with 98% rising, 0% remaining unchanged and 2% decreasing.

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 this month with a strong performance from escalating annuities increasing by up to 4.2% for both single and joint life aged 55 to 70 with a small decrease of 0.5% for those aged 75.

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 rates were significantly higher from 3.8% to as high as 8.0% for single life aged 75 for both level and 3% escalating annuities. For joint life the range of increases was from 2.2% to 5.3%.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 1.21% to 2.40% or 19 basis points. 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 - June 2015
Mon 1st Tues 2nd Wed 3rd Thurs 4th Fri 5th
2.25%
gilt yields up   0.04
2.34%
gilt yields up   0.09
2.49%
gilt yields up   0.15
2.39%
gilt yields down   0.10
2.45%
gilt yields up   0.06
Mon 8th Tues 9th Wed 10th Thurs 11th Fri 12th
2.44%
gilt yields down   0.01
2.49%
gilt yields up   0.05
2.51%
gilt yields up   0.02
2.46%
gilt yields down   0.05
2.41%
gilt yields down   0.04
Mon 15th Tues 16th Wed 17th Thurs 18th Fri 19th
2.44%
gilt yields up   0.03
2.40%
gilt yields down   0.04
2.46%
gilt yields up   0.06
2.50%
gilt yields up   0.04
2.42%
gilt yields down   0.08
Mon 22nd Tues 23rd Wed 24th Thurs 25th Fri 26th
2.52%
gilt yields up   0.10
2.53%
gilt yields up   0.01
2.51%
gilt yields down   0.02
2.53%
gilt yields up   0.02
2.56%
gilt yields up   0.03
Mon 29th Tues 30th      
2.43%
gilt yields down   0.13
2.40%
gilt yields down   0.03
     
  Fig 2: Daily 15-year gilt yields and changes

News related stories:
Annuities could rise as yields boosted by EU and US bond sell off
Best annuities could rise as Federal Reserve delays raising rates
UK annuities could rise as gilt yields make strong recovery
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  60 £4,699 £4,438  
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  70 £5,983 £5,409  
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