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6 June 2012 last updated
UK pension annuities pressure release as gilt yields rise

Gilt yields increased by 13 basis helps to release pressure from UK pension annuities although volatility remains with uncertainty in the Eurozone and the cost of Spain's debt.

Gilt yields have increased by 13 basis points to 2.19% and although there remains a high risk that pension annuity rates will reduce further this does take some pressure off providers and they may hold rates at the current level for a few more days to see how things change.

The 15-year gilt yields have been on a downward direction since the beginning of May reducing 61 basis points from 2.67% to 2.06% on the 5 June. This was due to the threat of a Greek exit from the euro and fear of Spain requiring a bailout.

As a general rule a fall of 61 basis points would result in a 6.1% fall in annuity rates although standard annuities have reduced by 1.78% and smoker annuities by 2.01% in the last month. For updates see Annuity Rates Review.

Annuities may gain with yields up
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Possible benefit for UK pension annuities

Today the FTSE-100 index was up 124 points at 5,384 and the US Dow Jones index up 286 at 12,414 with Europe up between 2% and 3%. This is good for pensioners planning to retire and take their benefits now as both UK pension annuities and equity funds have reduced in the past month and today's recovery, which may be brief, could stop the decline of their pension income.

The combination of both equities and UK pension annuities falling has reduced the retirement income of some annuitants by up to 15% in less than a month.

Rising yields may be related to progress made with Spain's need to strengthen their banks with 80bn euros and comments made by the European Central Bank (ECB) President Mario Draghi that the European Stability Mechanism could have a possible role in the re capitalization of troubled lenders.

The ECB have also left interest rates at 1% and there was a suggestion that some members supported reducing rates which could have helped equity markets to rise today.

News related stories:
Current annuity rates threatened as gilt yields decrease
Annuities rates fall may reverse with Eurozone bank bailout deal
Enhanced annuity rates fall by up to 3% as gilt yields reduce
UK annuity rates fall as Eurozone fear spreads to markets and gilts
Annuity income at risk as gilt yields and markets fall sharply
Related internet links:
Guardian - ECB dash hopes of eurozone emergency measures
Guardian - ECB leaves interest rates unchaned
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