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7 August 2014 last updated
Gilt yields fall after Ukraine crisis is threat to annuities
15-year gilt yields chart
Based on figures for July 2014
15-year gilt yields July 2014
 

The 15-year gilt yields have reduced by 16 basis points from a high of 3.21% to finish at 3.05% after sanctions against Russia sending investors to safe havens and threatening future annuities.

Standard rates:  
annuity rates down 0.08%
Enhanced rates:  
annuity rates up 0.04%
Gilt yields:  
annuity rates down 9 basis point



 
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Gilt yields forced lower after Ukraine crisis

The 15-year gilt yields decreased by 9 basis point during the month with mixed changes from the annuity providers. Standard rates decreased slightly on average and smoker and enhanced annuities increased marginally.

The crisis in Ukraine after the downing of the of Malaysian Airlines flight MH17 followed by sanctions from the US and EU against Russia has escalated tensions with investors seeking safe havens such as US Treasury notes and UK government bonds and gilts.

This has resulted in a fall in the 15-year gilt yields from a high of 3.21% this month to as low as 3.00%, the lowest point for the year.


Standard providers decreased their rates on average by 0.08% and we would expect so see further fall of 0.82% in the short term but in the medium term of 3 months annuity rates will decrease by 1.98%.

Smoker and enhanced annuity providers increased their rates by 0.04% on average and a decrease of 0.89% is possible in the short term but in the medium term of 3 months we can expect a decrease of 1.58%.

Equity markets started at 6,744 and decreased by only 14 points to end at 6,730. This represents a 0.02% fall and for people that remain invested there is not a great change in their position but August may prove more costly.

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   34%
annuity rates no change   34%
annuity rates decrease   32%
Increases of:
up to 0.5%

  Decreases of:
up to 1.3%
  Fig 1: Annuity rate changes for the whole market

Annuity changes were mixed for both standard and as well as enhanced and smoker annuities. The main decreases were for standard rates for those aged over 65 to 75 and for single life smokers aged 65 and joint life aged 55 to 60 with the largest falls.

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 across the board although there were some increases for those aged 55 to 60 single life rates.

What happened to enhanced rates

Lifestyle smoker and enhanced annuities have had a mixed month with slight increases for single life with a 10-year guaranteed period, increased 100% joint life has decreased.

Enhanced annuity 1 month changes
Fig 3: Change in enhanced rates last month compared to gilt yields

For enhanced rates the largest rise was from single life aged 70 to 75 but only up to about 0.5%. Impaired providers increased their rates by up to 1.0%. See Annuity Rates Review For the latest updates.

Changes to the 15-year gilt yields

For July the yields range for the month was from 3.00% to 3.21% or 21 basis points which is similar to the last month. 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 - July 2014
  Tues 1st Wed 2nd Thurs 3rd Fri 4th
 
3.16%
gilt yields up   0.02
3.19%
gilt yields up   0.03
3.20%
gilt yields up   0.01
3.21%
gilt yields up   0.01
Mon 7th Tues 8th Wed 9th Thurs 10th Fri 11th
3.19%
gilt yields down   0.02
3.13%
gilt yields down   0.06
3.13%
gilt yields no change
3.10%
gilt yields down   0.03
3.08%
gilt yields down   0.02
Mon 14th Tues 15th Wed 16th Thurs 17th Fri 18th
3.08%
gilt yields no change
3.11%
gilt yields up   0.03
3.11%
gilt yields no change
3.06%
gilt yields down   0.05
3.03%
gilt yields down   0.03
Mon 21st Tues 22nd Wed 23rd Thurs 24th Fri 25th
3.02%
gilt yields down   0.01
3.04%
gilt yields up   0.02
3.01%
gilt yields down   0.03
3.05%
gilt yields up   0.04
3.02%
gilt yields down   0.03
Mon 28th Tues 29th Wed 30th Thurs 31st  
3.03%
gilt yields up   0.01
3.00%
gilt yields down   0.03
3.03%
gilt yields up   0.03
3.05%
gilt yields up   0.02
 
  Fig 2: Daily 15-year gilt yields and changes

News related stories:
Enhanced annuities fall as Ukraine crisis sends yields to new low
Pension annuity income threat as FTSE and yields fall on new data

Annuity Rates
  Age Single Joint  
  55 £4,206 £3,946  
  60 £4,699 £4,438  
  65 £5,433 £4,954  
  70 £5,983 £5,409  
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