Why now could be a good time to consider Prudential Guaranteed Income Plan

Source: Workspace / Datastream and M&G LIO, July 2026

We can’t predict the future. Past performance isn’t a guide to future performance

While bond yields may move higher or lower from current levels, several structural factors suggest they could remain elevated, including persistent fiscal deficits, increased government borrowing requirements and reduced demand for long-dated bonds (20-30 years). For investors seeking certainty rather than trying to time future interest-rate movements, today's environment presents a compelling opportunity to lock in attractive fixed-term annuity rates.

The most significant structural support for higher yields is the continued deterioration in government finances across developed markets. The UK, US and Japan are all carrying substantially higher debt burdens than before the pandemic. Ageing populations, infrastructure spending, benefit costs and increased defence expenditure (combined with fiscal constraints) are all expected to contribute to increased borrowing requirements in the medium term. 

The UK government is likely to continue issuing significant quantities of medium and long-dated debt for years to come. This will have a material impact of the yields available in the gilt market. When bond supply rises faster than demand, investors typically require higher yields to absorb that issuance.

Source: Workspace / Datastream and M&G LIO, July 2026

The technical backdrop for long-dated bonds has also changed considerably. For much of the period 2008 to 2022, sovereign bond markets benefited from several powerful structural buyers:

• Central banks undertaking quantitative easing (QE)
• Defined benefit pension schemes hedging liabilities
• Institutional investors searching for yield
• Overseas investors looking for positive real returns

Many of these sources of demand have weakened. Central banks are no longer major net buyers of long-dated bonds. At the same time, many UK defined benefit pension schemes have achieved stronger funding positions and have already completed much of their de-risking and liability-matching programmes. The result is less natural demand for long-dated gilts than existed during the QE era. Current 30-year gilt yields of around 5.5% suggest investors now require significantly more compensation to provide long-term capital.

Perhaps the most underappreciated factor is the transformation taking place in Japan. For many years, Japanese investors were forced overseas in search of yield because domestic government bonds offered little or no return. That is no longer the case. Japanese inflation has become more persistent, the Bank of Japan has gradually moved away from its ultra-loose policy stance and 30-year Japanese government bond yields have risen above 4%. At the same time, yen weakness has increased the attractiveness of investing domestically rather than taking foreign currency exposure. Historically, Japanese investors were among the largest buyers of UK gilts and US Treasuries. If more of that capital remains in Japan, overseas bond markets may need to offer higher yields to attract alternative buyers..

We can’t accurately predict where gilt yields will move to in the near-term. Long-dated yields could move higher if fiscal deficits remain elevated, government borrowing requirements continue to increase, or investors demand greater compensation for inflation and fiscal risk.

However, investors do not need yields to rise further for fixed-term annuities to look attractive today. Current gilt yields remain substantially above the levels that prevailed for most of the period between the Global Financial Crisis and 2022, and annuity rates have improved accordingly. For investors whose priority is securing a known level of income rather than attempting to time bond markets, today's environment offers an opportunity to lock in attractive guaranteed returns and remove future interest-rate uncertainty.

There are, of course, plausible scenarios in which gilt yields could fall. A material slowdown in UK economic growth could prompt the Bank of England to cut interest rates more aggressively than currently expected. Equally, a faster-than-anticipated decline in inflation would reduce the inflation risk premium embedded in long-dated bonds. Periods of market stress, whether driven by recession fears, geopolitical uncertainty or unexpected policy developments, can also trigger a flight to quality, pushing yields lower. In each of these scenarios, investors who delay purchasing may find that future annuity rates become less attractive as insurers reinvest at lower yields.

While both outcomes remain possible, the balance of risks suggests that yields are likely to remain structurally higher than the ultra-low levels experienced during the previous 15 or so years. More importantly, today's annuity rates are already being supported by one of the most attractive long-term yield environments seen in many years. Rather than speculating on whether yields rise or fall from here, purchasing a PGIP fixed-term annuity allows investors to secure today's attractive terms, benefit from guaranteed returns and gain the comfort of known outcomes in an inherently uncertain market environment.