Pension annuities are at risk of reductions as gilt yields reach an all time low following the plunge in oil prices due as Saudi Arabia and Russia enter a price war.

The 15-year gilt yields have reduced to an all time low of 0.162% reducing 50 basis points in March. For the year yields are lower by 91 basis points having started the year at 1.07% due to the combination of coronavirus threat to global growth and now the oil price war.

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Annuity rates are mainly based on the 15-year gilt yields and a fall of 50 basis could see rates reduce by up to 5.0% although providers have not yet reacted to the latest falls.

It is expected that Saudi Arabia and Russia will increase the level of oil production significantly this month as they failed to reach an agreement to cut output to stabilise prices at a meeting in Vienna last weekend between OPEC and allies.

Saudi Arabia has reduced their official selling price for their oil sending global oil prices lower by 33% followed by equity markets in Asia and Europe tumbling. The FTSE-100 index down by up to 8% to 5,903, a level last reached in January 2013 and the worst day since the financial crisis in 2008.

Annuity rates and gilt yields   Sep Oct Nov Dec Jan Feb Mar Rate £4,956 £4,827 £5,065 £5,098 £5,032 £5,027 £5,027 Yield 0.71% 0.86% 0.93% 1.07% 0.76% 0.66% 0.30% Fig 1: Chart and table comparing standard annuity rates and 15-year gilt yields