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12 October 2018 last updated
Gilt yields higher ahead of the Federal Reserve raising interest rates
15-year gilt yields chart
Based on figures for September 2018
Latest gilt yield chart

The 15-year gilt yields increased 14 basis points during the month ahead of the Federal Reserve raising interest rates by 0.25% to 2.25% expected by investors.

Standard rates:  
annuity rates change 0.04%
Enhanced rates:  
annuity rates change 0.35%
Gilt yields:  
annuity rates change 14 basis point

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Annuity rates not reacting to rise in yields

The 15-year gilt yields rise during the month as there was an expectation of the Federal Reserve continuing their policy to increase interest rates in the US to counter a rise in inflation.

The 15-year gilt yield increased by 14 basis points to 1.71% during September 2018 with providers of standard annuities increasing rates by an average 0.04% for this month and we would expect rates to rise by 1.36% in the short term if yields do not fall.

For smoker and enhanced annuity providers have decreased their rates by an average of -0.35% and rates may rise by 1.75% in the short term if yields do not fall.

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 decrease   31%
annuity rates no change   11%
annuity rates decrease   58%
Increases of:
up to 1.8%


Decreases of:
up to -1.5%

  Fig 1: Annuity rate changes for the whole market

For the month 31% of annuity rates increased by up to 1.6% with 11% remaining unchanged and 58% decreasing by up to -1.5%.

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 were virtually unchanged during the month. The largest rise was for those aged 70 based on a 50% joint life with 3% escalation up by 1.8% for the month with the largest decrease for those aged 65 on a 50% joint life level basis down -1.5%.

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 the majority of rates decreased by -0.35% for the month on average. The largest rise was for those aged 55 based on a 100% joint life level basis up 0.7% for the month with the largest decrease for those aged 70 on a single life level basis down -0.9%.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month from 1.57% to 1.71% 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 - September 2018
Day Rate (%) Change (bp*)
3 1.54 -3
4 1.57 +3
5 1.59 +2
6 1.57 -2
7 1.60 +3
10 1.61 +1
11 1.64 +3
12 1.63 -1
13 1.65 +2
14 1.67 +2
17 1.67 0
18 1.70 +3
19 1.75 +5
20 1.72 -3
21 1.69 -3
24 1.76 +7
25 1.78 +2
26 1.74 -4
27 1.73 -1
28 1.71 -2
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

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Annuity Rates
  Age Single Joint  
  55 £4,574 £4,142  
  60 £4,961 £4,610  
  65 £5,691 £5,238  
  70 £6,478 £6,098  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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