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6 May 2016 last updated
Gilt yields rise with a global sell off in bonds starting in Europe
15-year gilt yields chart
Based on figures for April 2016
Latest gilt yield chart
 

The ECB has hinted on reducing deposit interest rates sparking a sell off of global bonds and a 14 basis point rise in the 15-year gilt yields suggesting annuity rates may improve.

Standard rates:  
annuity rates up 1.53%
Enhanced rates:  
annuity rates up 0.77%
Gilt yields:  
annuity rates up 14 basis point



 
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Annuity rates still lower despite higher yields

The 15-year gilt yields were higher by 14 basis points for the month as the European Central Bank (ECB) President Mario Draghi indicated a broadly positive experience with negative deposit interest rates.

He also expressed a need to tackle low inflation and this started a global sell off of bonds sending yields higher. As a general rule a 14 basis point rise in yields would result in a 1.4% increase in annuity rates.

Following the merger of enhanced annuity providers Just Retirement and Partnership Assurance to form the Just Retirement Partnership Group (JRP Group) rates have reduced across the board.

Providers of enhanced and impaired annuities dominate the conventional annuity market by offering lifestyle rates and the recent change in their rates have impacted the whole market.

Standard providers decreased rates by 1.53% and we would expect in the short term rates may rise by 2.93%. Smoker and enhanced annuity providers decreased their rates by 0.77% on average and in the short term rates may rise by 2.17%.

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   4%
annuity rates no change   26%
annuity rates decrease   70%
Increases of:
up to 2.0%

  Decreases of:
up to 4.2%
  Fig 1: Annuity rate changes for the whole market


The majority of rates increased with 4% rising, 26% remaining unchanged and 70% 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 decreased by an average of 1.53% during the month with a larger decrease of up to 3.6%% for those aged 70-75 buying single life 3% escalating annuities.

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 providers rates the majority decreased by an average of 0.77% with a larger decrease of up to 4.20% for those aged 60-65 buying single life 3% escalating annuities. Only for those aged 75 on a single life basis received up to a 2.0% rise in rates.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 1.96% to 2.10% or 14 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 2016
        Fri 4th
       
1.95%
gilt yields down   0.01
Mon 4th Tues 5th Wed 6th Thurs 7th Fri 8th
1.97%
gilt yields up   0.02
1.93%
gilt yields down   0.04
1.92%
gilt yields down   0.01
1.88%
gilt yields down   0.04
1.91%
gilt yields up   0.03
Mon 11th Tues 12th Wed 13th Thurs 14th Fri 15th
1.95%
gilt yields up   0.04
2.00%
gilt yields up   0.05
1.88%
gilt yields down   0.04
1.98%
gilt yields up   0.02
1.96%
gilt yields down   0.02
Mon 18th Tues19th Wed 20th Thurs 21st Fri 22nd
2.02%
gilt yields up   0.06
2.05%
gilt yields up   0.03
2.01%
gilt yields down   0.04
2.09%
gilt yields up   0.08
2.11%
gilt yields up   0.02
Mon 25th Tues 26th Wed 27th Thurs 28th Fri 29th
2.11%
gilt yields no change
2.18%
gilt yields up   0.07
2.12%
gilt yields down   0.06
2.12%
gilt yields no change
2.10%
gilt yields down   0.02
  Fig 2: Daily 15-year gilt yields and changes


News related stories:
Enhanced annuities lower as providers merge to form new group
Best annuity rates reduce by 4% from Just Retirement
Latest annuity rates could fall as gilt yields reach 12-month low
Annuity income lower as markets fall on global slowdown fears
Annuity Rates
  Age Single Joint  
  55 £4,216 £3,974  
  60 £4,702 £4,423  
  65 £5,453 £5,013  
  70 £6,105 £5,482  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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