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5 June 2020 last updated |
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| Annuities could rise as equity markets and gilt yields rebound |
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Annuity rates could rise 1.9% with higher gilt yields as US markets lead equities higher |
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Strong rise in US equities with better than expected economic data and less impact from Covid-19 sends global markets and gilt yields higher.
The US Dow Jones Index is up 6.4% for the first week of June with the FTSE-100 Index increasing 318 points or 5.1% to 6,484. Since reaching a low of 4,993 on 23 March the index has increased 1,491 points or 29.8%.
Yields on bonds and gilts have increased with the 15-year gilt yields rising 19 basis points to 0.58%. As annuity rates are mainly based on these yields it suggests that providers may be able to increase pension annuities by about 1.9% at some point in the future if gilt yields remain at this level.
In the US the level of unemployment has reduced from 14.7% to 13.3% when analysts expected the level of unemployment to increase to 19%. In addition there is substantial fiscal and monetary stimulus available to support the economy when needed.
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FTSE-100 index and gilt yields |
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Dec |
Jan |
Feb |
Mar |
Apr |
May |
June |
| FTSE |
7,542 |
7,286 |
6,580 |
4,993 |
5,901 |
6,076 |
6,484 |
| Rates |
£5,098 |
£5,032 |
£5,027 |
£4,853 |
£4,926 |
£4,920 |
£4,920 |
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Fig 1: Chart and table comparing FTSE-100 Index and 15-year gilt yields |
The above chart and table shows the rapid recovery in the FTSE-100 index after reducing to 4,993 following investor fear of the economic impact of Coronavirus.
Find related news here:
Equity markets rally on hopes for vaccine as yields lack direction
Annuity rates higher despite lower yields with global economic concerns
Equity markets surge 15% as US Senate agrees $2tn stimulus package
The combination of news from drugs researcher Moderna on 18 May of a positive outcome from the vaccine trial against Covid-19 and better than expected unemployment figures in the US has given investors more confidence that the economic outlook may not be as bleak as expected.
Rising equity markets is against a backdrop of demonstrations and protects around the would after the death of George Floyd
and continuing spread of Covid-19 in South America and Middle Asia.
During the Coronavirus pandemic annuity rates have remained surprisingly steady with our benchmark example of a 65 year old with £100,000 buying an annuity on a single life, level basis reducing from £5,032 pa in January to £4,853 pa in March.
The rate of £4,920 pa in June is actually 1.93% higher than the figure in October 2019 and for those invested in equities, your fund is likely to have recovered much of the losses sustained since March.
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Age |
Single |
Joint |
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55 |
£6,132 |
£5,784 |
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60 |
£6,532 |
£6,234 |
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65 |
£7,247 |
£6,808 |
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70 |
£8,170 |
£7,616 |
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£100,000 purchase, level rates, standard
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