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6 September 2016 last updated
Annuity rates lower as Bank of England starts QE sending yields to new lows
15-year gilt yields chart
Based on figures for August 2016
Latest gilt yield chart
 

Annuity rates reduced to all time lows after the Bank of England reduced interest rates and started £70 billion of quantitative easing with gilt yields reaching to the lowest ever point of 0.90%.

Standard rates:  
annuity rates up 4.57%
Enhanced rates:  
annuity rates up 4.28%
Gilt yields:  
annuity rates up 23 basis point



 
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Another record low for annuities

The Bank of England has reduced interest rates to 0.25% as well as started measures to stimulate the economy with quantitative easing (QE) buying £60 billion of UK government gilts and £10 billion of corporate bonds.

This sent the 15-year gilt yields to a record low of 0.90% on 11 August before recovering to 0.93% for the day. For the month the 23 basis point fall send annuity rates over 4% lower.

Standard providers decreased rates by an average of 4.57% and we would expect in the short term rates may increase further by 2.27%.

For smoker and enhanced annuity providers decreased their rates by an average of 4.28% on average and in the short term rates may increase by 1.98%.

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 no change   0%
annuity rates no change   0%
annuity rates decrease   100%
Increases of:
none

  Decreases of:
up to 6.9%
  Fig 1: Annuity rate changes for the whole market


For the month of August 100% of annuity rates decreased by up to 6.9% following action by the Bank of England to stimulate the economy.

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 4.57% during the month with a larger decrease of up to 6.5%% for those aged 60 buying 50% joint 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 all rates decreased by an average of 3.20% with a larger decrease of up to 6.9% for those aged 70 buying single life, 3% escalating annuities.

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 0.98% or 23 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 - August 2016
Day Rate (%) Change (bp*)
1st 1.24 +3
2nd 1.31 +7
3rd 1.31 0
4th 1.13 -18
5th 1.14 +1
8th 1.09 -5
9th 1.05 -4
10th 0.94 -11
11th 0.93 -1
12th 0.94 +1
15th 0.98 +4
16th 1.05 +7
17th 1.04 -1
18th 1.02 -2
19th 1.08 +6
22nd 1.03 -5
23th 0.99 -4
24th 0.99 0
25th 1.01 +2
26th 1.00 -1
30th 0.96 -4
31st 0.98 +2
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points


News related stories:
Retirement annuity rates could fall as Bank starts more QE
Pension annuities lower by 9% over the year from leading providers
UK annuities could gain if Fed increase interest rates in June
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  55 £4,206 £3,946  
  60 £4,699 £4,438  
  65 £5,433 £4,954  
  70 £5,983 £5,409  
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