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8 April 2020 last updated

Annuity rates could rise after volatile gilt yields impact by Coronavirus

Annuity rates could rise
 
Standard rates:  
annuity rates change 3.02%
Enhanced rates:  
annuity rates change 1.78%
Gilt yields:  
annuity rates change 6 basis point
 
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15-year gilt yields chart - Based on figures for March 2020
Latest gilt yield chart

March 2020 Review

Gilt yields were extremely volatile during March swinging 103 basis points from an all time low to a high for the year in a matter of weeks as investor reach to Coronavirus threat.

Investors moved their assets to the safe havens with 15-year gilt yields reducing to an all time low of 0.162% on 9 March 2020.

This was 91 basis points lower than the start of the year at 1.07% reducing due to the threat of Coronavirus to global economic growth and price war on oil prices.

By 18 March investors were selling liquid assets such as bonds and gilts ahead of UK and US fiscal stimulus packages sending the 15-year gilt yields to a high of 1.20% briefly before returning back to a similar level at the start of the month.

Find related news here:
Equity markets surge 15% as US Senate agrees $2tn stimulus package
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Pension annuities risk as oil price fall sends yields to all time lows

The 15-year gilt yield are lower by 6 basis points to 0.60% during March 2020 after rising to a high of 1.13% in the middle of the month.

Providers of standard annuities reduced annuity rates by an average of -3.02% for this month and we would expect rates to rise by 2.42% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have decreased their rates by an average of -1.78% and rates and we would expect rates to increase 1.18% 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   7%
annuity rates no change   2%
annuity rates decrease   91%
Increases of:
max 1.9%

 

Decreases of:
max -5.6%

  Fig 1: Annuity rate changes for the whole market


For the month 7% of annuity rates increased by up to 1.9% with 2% remaining unchanged and 91% decreasing by as much as to -5.6%.

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 0.66% to 0.60% or 6 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 - March 2020
Day Rate (%) Change (bp*)
2 0.63 -3
3 0.62 -1
4 0.60 -2
5 0.56 -4
6 0.41 -15
9 0.31 -10
10 0.38 +7
11 0.47 +9
12 0.47 0
13 0.65 +18
16 0.66 +1
17 0.76 +10
18 1.13 +37
19 0.80 -33
20 0.70 -10
23 0.55 -15
24 0.65 -10
25 0.68 +3
26 0.60 -8
27 0.56 -4
30 0.53 -3
31 0.60 +7
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
Investors seek safety of gilts as global health emergency declared
Annuity rates lower as demand for safe havens rise on coronavirus fears
Gilt yields rise as US-China trade deal could boost global growth
Yields recover after US considers limited trade deal with China
Annuity Rates
  Age Single Joint  
  55 £3,723 £3,370  
  60 £4,192 £3,911  
  65 £4,920 £4,378  
  70 £5,769 £5,246  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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