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6 February 2015 last updated
Annuities under threat as gilt yields fall to an all time low
15-year gilt yields chart
Based on figures for January 2015
15-year gilt yields January 2015

The 15-year gilt yields have continued to fall to a new all time low of 1.68%. Providers reduced their standard rates by 4.3% and 4.6% for impaired rates as yields are lower by 47 basis points after the ECB starts their €1.1 trillion stimulus programme.

Standard rates:  
annuity rates down 4.29%
Enhanced rates:  
annuity rates down 4.60%
Gilt yields:  
annuity rates down 47 basis point

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Investors continue to seek safe havens

Investors continue to seek safe havens sending the 15-year gilt yields lower by 47 basis points to an all time low of 1.68%.

The European Central Bank (ECB) announced the start of their Quantitative Easing with €1.1 trillion or €60 billion per month of bonds into the Eurozone until September 2016. The objective is to continue the programme until there is a sustained adjustment in the path of inflation.

Standard providers fell on average by 4.29% and we would expect to see decrease of 0.41% in the short term and in the medium term of 3 months annuity rates will decrease by 3.14%.

Smoker and enhanced annuity providers decrease their rates by 3.84% on average with an increase of 0.86% possible in the short term and in the medium term of 3 months we can expect a decrease of 2.79%.

Equity markets started at 6,566 and increased by 156 points to end at 6,749. This represents a 2.7% rise and for people that remain invested will see a fall in their annuity income even with improving equities.

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   0%
annuity rates no change   0%
annuity rates decrease   100%
Increases of:
up to 0.0%

  Decreases of:
up to 7.5%
  Fig 1: Annuity rate changes for the whole market

All annuity rates decreased with 0% rising, 0% remaining unchanged and 100% decreasing with some rates lower by 7.5%.

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 continued to decreased with the highest falls of up to 7.5% for single life between ages 55 and 60. The majority of all rates have reduced by between 2.7% to 5.2% and none have remained the same or increased.

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 rates all decreased during the month with the highest fall of 7.2% for 100% joint life aged 75 and other high falls of 5.4% for single life and joint life, 3% escalating rates. The majority of all rates have reduced by between 2.2% to 4.9% and none have remained the same or increased. For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 2.15% to 2.68% or 47 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 - January 2015
        Fri 2nd
gilt yields down   0.02
Mon 5th Tues 6th Wed 7th Thurs 8th Fri 9th
gilt yields down   0.7
gilt yields down   0.04
gilt yields down   0.02
gilt yields up   0.03
gilt yields down   0.05
Mon 12th Tues 13th Wed 14th Thurs 15th Fri 16th
gilt yields down   0.02
gilt yields down   0.02
gilt yields down   0.06
gilt yields down   0.02
gilt yields up   0.03
Mon 19th Tues 20th Wed 21st Thurs 22nd Fri 23rd
gilt yields down   0.03
gilt yields down   0.01
gilt yields down   0.03
gilt yields up   0.07
gilt yields down   0.10
Mon 26th Tues 27th Wed 28th Thurs 29th Fri 30th
gilt yields up   0.01
gilt yields up   0.01
gilt yields down   0.03
gilt yields down   0.03
gilt yields down   0.06
  Fig 2: Daily 15-year gilt yields and changes

News related stories:
Pension annuity rates to reduce as ECB starts €1.1 trillion stimulus
Impaired annuities down 4.6% as yield pressure builds on providers
Annuity rates fall 4.2% as 15-year gilt yields reach an all time low
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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