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6 September 2021 last updated

Gilt yields increase as Federal Reserve signals tapering to start in 2021

Gilt yields rise as Fed signals tapering
 
Standard rates:  
annuity rates change 0.00%
Enhanced rates:  
annuity rates change 0.87%
Gilt yields:  
annuity rates change 6 basis point
 
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15-year gilt yields chart - Based on figures for August 2021
Latest gilt yield chart

Annuity Rates UK - August 2021 review

The Federal Reserve has signaled it may start tapering later this year sending the 15-year gilt yields up 6 basis points to end 0.92% and annuities may begin to improve.

Investors are selling bonds and gilts after the Fed Chair Jerome Powell said the central bank is in a position to reduce the bond buying programme later this year.

According to the Federal Reserve the US economy has satisfied the test of making 'substantial further progress' in terms of its inflation target and the employment has also seen 'clear progress'. As a result the Fed would consider tapering bond purchases to start towards the end of 2021.

Find related news here:
Gilt yields fall as investors seek safe havens with spread of Delta variant
Annuity rates are highest for two years despite lower 15-year gilt yields

Providers of standard annuities predominately increased annuity rates band on average this was 0.00% for this month and we would expect rates to increase by 0.60% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have reduced their rates by an average of -0.87% and rates and we would expect rates to rise by 1.47% 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   46%
annuity rates no change   24%
annuity rates decrease   30%
Increases of:
max 0.5%

 

Decreases of:
max -7.3%

  Fig 1: Annuity rate changes for the whole market


For the month 46% of annuity rates increased by up to 0.5% with 24% remaining unchanged and 30% decreasing by as much as to -7.3%.

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


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 the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month from 0.86% to 0.92% or 6 basis point. Table 1 below shows the daily 15-year gilt yields and the increase or decrease from the previous day's close:


15-Year Gilt Yields - August 2021
Day Rate (%) Change (bp*)
2 0.82 -4
3 0.82 0
4 0.81 -1
5 0.81 0
6 0.89 +8
9 0.84 -5
10 0.85 +1
11 0.84 -1
12 0.88 +3
13 0.85 -3
16 0.85 0
17 0.84 -1
18 0.85 +1
19 0.83 -2
20 0.82 -1
23 0.83 +1
24 0.83 0
25 0.89 +6
26 0.90 +1
27 0.88 -2
31 0.92 +3
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
Gilt yields rise as GDP figures show US economy first quarter recovery
Pension annuities rise 3.2pc as investors sell gilts and bonds
Retirement income recovers 30pc as UK eases lockdown measures
Annuity Rates
  Age Single Joint  
  55 £3,851 £3,569  
  60 £4,268 £3,973  
  65 £4,965 £4,581  
  70 £5,831 £5,274  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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