Gilt yields recover to help annuities higher

The 15-year gilt yields increased by 8 basis point during the month followed by higher rates from providers for both standard and smoker and enhanced annuities. As a general rule an 8 basis point rise would result in a 0.8% rise in annuity rates.

There was a rise in yields by 16 basis points to 3.22% driving annuities higher but with an unexpected fall in retail sales to the lowest level since January and US GDP shrinking by 2.9% in the first quarter yields reduced to show only a modest improvement.

Standard providers increased their rates on average by 0.56% and we would expect so see further improvement of 0.24% in the short term but in the medium term of 3 months annuity rates will decrease by 0.58%.

Smoker and enhanced annuity providers increased their rates by 0.73% on average and an increase of 0.07% is possible in the short term but in the medium term of 3 months we can expect a slightly improved increase of 0.16%.

Equity markets started at 6,844 and decreased by 100 points to end at 6,744. This represents a 1.46% fall and for people that remain invested have seen lower fund values which would be slightly offset by higher annuity rates.

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   71%   7%   12% Increases of: up to 1.6%   Decreases of: up to 2.1%

Fig 1: Annuity rate changes for the whole market

Fig 2: Change in standard rates last month compared to gilt yields

Fig 3: Change in enhanced rates last month compared to gilt yields

15-Year Gilt Yields - June 2014 Mon 2nd Tues 3rd Wed 4th Thurs 5th Fri 6th 3.11%   0.05 3.14%   0.03 3.17%   0.03 3.16%   0.01 3.15%   0.01 Mon 9th Tues 10th Wed 11th Thurs 12th Fri 13th 3.18%   0.03 3.20%   0.02 3.19%   0.01 3.19% 3.21%   0.02 Mon 16th Tues 17th Wed 18th Thurs 19th Fri 20th 3.20%   0.01 3.22%   0.02 3.19%   0.03 3.19% 3.22%   0.03 Mon 23rd Tues 24th Wed 25th Thurs 26th Fri 27th 3.19%   0.03 3.19% 3.12%   0.07 3.11%   0.01 3.11% Mon 30th         3.14%   0.03

Fig 2: Daily 15-year gilt yields and changes

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