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7 September 2018 last updated
Annuities fall as economic tension builds with US tariffs
15-year gilt yields chart
Based on figures for August 2018
Latest gilt yield chart
 

Providers of pension annuities have reduced rates as the economic impact of US tariffs on China and Turkey sends ripples through the market.

Standard rates:  
annuity rates change 1.10%
Enhanced rates:  
annuity rates change 1.42%
Gilt yields:  
annuity rates change 2 basis point



 
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Pension annuities lower by as much as 5.4%

The providers of pension annuities have reduced smoker and enhanced rates by as much as 5.4%. Investors have sought the safety of bonds and gilts with concerns of the economic impact of US trade tariffs on China and Turkey with the latter impacting the EU with bank debt exposure.

The 15-year gilt yield reduced by 2 basis points to 1.57% during August 2018 with providers of standard annuities decreasing rates by an average -1.10% for this month and we would expect rates to rise by 0.90% in the short term if yields do not fall.

For smoker and enhanced annuity providers have decreased their rates by an average of -1.42% and rates may rise by 1.22% 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   6%
annuity rates no change   12%
annuity rates decrease   82%
Increases of:
up to 0.8%

 

Decreases of:
up to -5.4%

  Fig 1: Annuity rate changes for the whole market


For the month 6% of annuity rates increased by up to 0.8% with 12% remaining unchanged and 68% decreasing by up to -5.4%.

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 decreased by an average of -1.10% during the month. The largest rise was for those aged 60 based on a single life with level income up by 0.8% for the month with the largest decrease for those aged 60 to 70 on a single life 3% escalation basis down -3.3%.

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 -1.4% for the month on average. The largest rise was for those aged 70 based on a single life level basis up 0.4% for the month with the largest decrease for those aged 65 on a single life with 3% escalating basis down -5.4%.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month from 1.59% to 1.57% or 2 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 - August 2018
Day Rate (%) Change (bp*)
1 1.63 +4
2 1.63 0
3 1.59 -4
6 1.56 -3
7 1.58 +2
8 1.58 0
9 1.57 -1
10 1.52 -5
13 1.53 +1
14 1.54 +1
15 1.51 -3
16 1.52 +1
17 1.52 0
20 1.51 -1
21 1.55 +4
22 1.56 0
23 1.55 -1
24 1.56 +1
28 1.58 +2
29 1.61 +3
30 1.58 -3
31 1.57 -1
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points


News related stories:
Gilt yields fall with Italy political turmoil and could hit annuity rates
Annuity rates fall as interest rate rise unlikely due to weak UK growth
UK annuities risk fall after Trump trade tariffs on Chinese imports
Pension annuity rates surge almost 4% by providers with higher yields
Annuity Rates
  Age Single Joint  
  55 £4,358 £4,209  
  60 £4,839 £4,644  
  65 £5,613 £5,193  
  70 £6,292 £5,860  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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