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6 March 2015 last updated
Gilt yields recover from all time low boosting impaired annuity rates
15-year gilt yields chart
Based on figures for February 2015
15-year gilt yields February 2015

Gilt yields have recovered all the previous falls with a rise of 47 basis points sending impaired annuity rates higher by 3.5% from most providers although smoker and standard annuities are slow to react.

Standard rates:  
annuity rates up 0.13%
Enhanced rates:  
annuity rates down 0.92%
Gilt yields:  
annuity rates up 47 basis point

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Providers slow to increase their rates

Providers of smoker and standard rates have been slow to react to improving gilt yields and we are yet to see any meaningful increases in contract to impaired annuities with increases of up to 3.5%.

Smoker and enhanced annuity providers decrease their rates by 0.92% on average with an increase of 5.62% possible in the short term and in the medium term of 3 months we can expect a decrease of 5.17%.

Equity markets started at 6,749 and increased by 198 points to end at 6,947. This represents a 2.9% rise and for people that remain invested will see a fall in their annuity income even with improving equities.

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   27%
annuity rates no change   24%
annuity rates decrease   49%
Increases of:
up to 1.4%

  Decreases of:
up to 3.0%
  Fig 1: Annuity rate changes for the whole market

All annuity rates decreased with 0% rising, 0% remaining unchanged and 100% decreasing with some rates lower by 7.5%.

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

Standard annuities increased slightly overall with no improvements over 0.8% and no decreases less than 0.6%.

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 virtually all decreased between 0.8% and 3.0%. There were some increases for those aged 75 on a single life level and 3% escalating basis with a rise of 1.4%. For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 1.68% to 2.15% or 47 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 - February 2015
Mon 2nd Tues 3rd Wed 4th Thurs 5th Fri 6th
gilt yields up   0.03
gilt yields up   0.08
gilt yields up   0.07
gilt yields up   0.01
gilt yields up   0.11
Mon 9th Tues 10th Wed 11th Thurs 12th Fri 13th
gilt yields down   0.04
gilt yields up   0.08
gilt yields up   0.02
gilt yields no change
gilt yields up   0.02
Mon 16th Tues 17th Wed 18th Thurs 19th Fri 20th
gilt yields down   0.02
gilt yields up   0.09
gilt yields up   0.05
gilt yields down   0.01
gilt yields down   0.06
Mon 23th Tues 24th Wed 25th Thurs 26th Fri 27th
gilt yields up   0.03
gilt yields down   0.07
gilt yields down   0.01
gilt yields up   0.02
gilt yields up   0.06
  Fig 2: Daily 15-year gilt yields and changes

News related stories:
Pension annuity rates to reduce as ECB starts €1.1 trillion stimulus
Impaired annuities down 4.6% as yield pressure builds on providers
Annuity rates fall 4.2% as 15-year gilt yields reach an all time low
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  70 £6,270 £5,588  
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