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8 January 2021 last updated

Gilt yields fall with more Covid-19 cases sending annuity rates lower

Gilt yields fall with more Covid-19 cases
 
Standard rates:  
annuity rates change 1.19%
Enhanced rates:  
annuity rates change 2.15%
Gilt yields:  
annuity rates change 13 basis point
 
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15-year gilt yields chart - Based on figures for December 2020
Latest gilt yield chart

December 2020 Review

Annuity rates are reduced by providers as cases of Covid-19 rise across Europe and the US with record numbers recorded in the UK.

Gilt yields fall to 0.40% despite a bounce back before a Brexit deal was announced as investors seek the safe haven of gilts with uncertainty over the pandemic.

Find related news here:
Successful vaccine for Covid-19 sends gilt yields higher
Annuity rates could rise as gilt yields bounce back with vaccine results

The 15-year gilt yields reduce by 13 basis points to 0.40% during December with investor concern of rising Coronavirus cases in the UK hit new record numbers over the Christmas period.

Providers of standard annuities reduced annuity rates by an average of -1.19% for this month and we would expect rates to fall by -0.11% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have decreased their rates by an average of -2.15% and rates and we would expect rates to rise by 0.85% 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   2%
annuity rates no change   0%
annuity rates decrease   98%
Increases of:
max 0.3%

 

Decreases of:
max -7.7%

  Fig 1: Annuity rate changes for the whole market


For the month 2% of annuity rates increased by up to 0.3% with 0% remaining unchanged and 98% decreasing by as much as to -7.7%.

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 0.53% to 0.40% or 13 basis point. Table 1 below shows the daily 15-year gilt yields and the increase or decrease from the previous day's close:


15-Year Gilt Yields - December 2020
Day Rate (%) Change (bp*)
1 0.57 +4
2 0.58 +1
3 0.55 -3
4 0.58 +3
7 0.51 -6
8 0.48 -3
9 0.48 0
10 0.42 -6
11 0.39 -3
14 0.43 +4
15 0.48 +5
16 0.48 0
17 0.50 +2
18 0.45 -5
21 0.41 -4
22 0.39 -2
23 0.51 +11
24 0.47 -4
29 0.42 -5
30 0.40 -2
31 0.40 0
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
Annuities at risk with volatile gilts due to Covid-19 restrictions in Europe
Fear of new Covid-19 restrictions in Europe sends gilt yields lower
Providers raise annuity rates as gilt yields bounce 22 basis points
Annuity Rates
  Age Single Joint  
  55 £6,132 £5,784  
  60 £6,532 £6,234  
  65 £7,247 £6,808  
  70 £8,170 £7,616  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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