Gilt yields recover after Italian turmoil

The Italian political turmoil was short lived and investors satisfied with the solution reached by the coalition government avoiding a full blown crisis. The 15-year gilt yields have already recovered 15 basis points this month releasing pressure for the providers to take action reducing rates.

The above table compares the change in annuity rates and 15-year gilt yields since December 2017. Providers have maintained rates and for for our benchmark example of a 65 year old with a £100,000 fund buying a single life, level income rates are 2.97% higher.

In terms of the £163 pa rise in lifetime income, the Office of National Statistics (ONS) would expect a male to live for 17.3 years and he will have £2,820 more over his lifetime. For a female she can expected to live for 20.4 years increasing her lifetime income by £3,325.

Over the year annuity rates have increased £367 pa from £5,272 pa in May 2017 and since reaching the all time low in August 2016 of £4,696 pa, rates are 20.0% or £943 pa higher.

This is a considerable recovery exceeding that of the recovery in yields. Gilt yields reduced to an all time low 0.90% during August 2016 following the Brexit vote and have since recovered to 1.68%, up 78 basis points suggesting annuities would increase by only 7.8%.

Over the long term of 10 years our benchmark example has reduced from £7,908 pa in JUly 2008 to £5,639 pa today down -28.7%. This compares to gilt yields lower by -33.0% suggesting that over the long term gilt yields and annuities are more closely matched.

For annuities the providers may be more buoyant with the recover in yields as they return to their previous upward direction.