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Gilt plunge lifts annuities

Annuity rates are expected to see a boost after last week’s pre-Budget report sent the price of gilts tumbling.

Gilts initially rose as investors reacted favourably to a largely unchanged forecast for gilt issuance in the PBR. But the small print failed to outline how the Government was planning to cut borrowing, which prompted fears that the UK’s AAA credit rating would be downgraded.

A fall in the price of gilts increases the yield, which determines annuity rates. Yields for 10 -year gilts have risen by 8.1 per cent in under two weeks and jumped by 4 per cent last week.

Hargreaves Lansdown pensions analyst Nigel Callaghan says: “The price of gilts has fallen through the floor. The market is spooked by the Government debt and the fact there is no credible plan to begin bringing the budget under control. This should be very good news for annuities because the fall is so dramatic.

“Rates in the short-term should go up if this continues but it could be a temporary blip. Annuity rates are bonkers at the moment. They are surging and falling in ways they have just never done before. It must be a nightmare for the pricing actuaries. This used to be a sleepy world, now there are typically several rate changes a week.”

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  1. What does a 10 ear gilt look like!

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