Gilt ladder calculator

What yearly income could your money buy from UK government bonds (gilts)?

Enter an amount and the years you want an income for.
See a flat income, an income that rises with inflation, and the two compared.
Open the steps under each result to learn more, one layer at a time.
Illustrative only, not advice. It runs in your browser; nothing you type is stored or sent.

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Flat income

– a year

Every year from – to – · – payments

The same number of pounds every year.
Paid by – gilts that repay one after another.
Prices tend to rise, so each payment buys a little less over time.

Fixed only if you hold every gilt until it matures. Sold early, a gilt fetches the market price on the day, which can be less than you paid.

Payment each year, in pounds

Learn more, step by step

1How a flat ladder works
- A gilt is a bond: a loan to the UK government. Gilts are issued by the UK government, which has never defaulted on a gilt, though that is not a guarantee of future performance.
- It pays interest (a coupon) twice a year.
- On its maturity date it repays its face value.
- A ladder holds gilts that mature one after another, one for most years you need money.
- Each year, the gilt that matures plus the coupons pay that year’s income.
- Held to maturity, nothing has to be sold at the price of the day.
2What inflation does to it
- Each payment stays at – in cash.
- The market expects prices to rise by about – a year.
- At that rate, the payment in – would buy about – of today’s goods.
- That is an estimate. Inflation could turn out higher or lower.
- With a flat ladder, you carry the inflation risk.
- Want payments that keep pace with prices? .
3The gilts in this ladder
- – gilts, costing – in total.
- “Repays” is the face value each gilt pays back when it matures.
- Cost is the modelled price, including interest built up since the last coupon.
- Prices as at –.
4The assumptions
- Gilts are priced off the Bank of England yield curves as at –.
- These are model prices, not dealing prices.
- The calculator picks the cheapest set of gilts that pays every year.
- Money that arrives early is held as cash until it is needed.
- That cash is assumed to earn interest equal to inflation.
- Coupons and repayments in a year are counted as one annual payment.
- Read the full method.
5Risks and limitations
- Selling early. A gilt sold before it matures fetches the market price on the day. You could get back less than you paid.
- When interest rates rise, gilt prices fall. The longer a gilt has left to run, the further it falls.
- Inflation. The payments do not rise with prices.
- Prices move. Gilt prices change every day, and with them the income your money buys.
- It stops. Nothing is paid after the last year, however long you live.
- Tax and costs. All figures are before tax and dealing costs.
- Everything the figures leave out.

Inflation-uplifted income

– a year

In today’s money, every year from – to – · – payments

Each payment rises with inflation (the Retail Prices Index, RPI).
So it keeps buying about what – buys today.
In pounds: about – in –, rising to about – by – (estimate).
Paid by – index-linked gilts that repay one after another.

Fixed only if you hold every gilt until it matures. Sold early, a gilt fetches the market price on the day, which can be less than you paid.

Payment each year, in pounds (estimate)

Assumes inflation of about – a year, today’s market-implied rate. If inflation is higher, the payments will be higher; if lower, lower.

Learn more, step by step

1How an inflation-uplifted ladder works
- An index-linked gilt is a loan to the UK government that rises with inflation. Gilts are issued by the UK government, which has never defaulted on a gilt, though that is not a guarantee of future performance.
- Its coupons and its repayment are uprated by the RPI.
- A ladder holds such gilts maturing one after another, one for most years you need money.
- Each year, the gilt that matures plus the coupons pay that year’s income.
- Held to maturity, nothing has to be sold at the price of the day.
2Today’s money and pounds
- “Today’s money” means what a payment buys at today’s prices.
- In today’s money, every payment is –.
- The pounds you receive depend on actual inflation, so they are only known when each payment falls due.
- The chart assumes the market-implied rate of about – a year.
- With an inflation-uplifted ladder, the payments carry the inflation risk, not you.
- Prefer a fixed number of pounds? .
3The gilts in this ladder
- – index-linked gilts, costing – in total.
- “Repays” is what each gilt pays back, in today’s money: its face value uprated by the RPI since it was issued.
- That is why two gilts can cost about the same per pound repaid while their face values differ widely.
- Cost is the modelled price, including interest built up since the last coupon.
- Prices as at –.
4The assumptions
- Gilts are priced off the Bank of England yield curves as at –.
- These are model prices, not dealing prices.
- The calculator picks the cheapest set of gilts that pays every year.
- Everything is worked out in today’s money, using each gilt’s uprating to date.
- Money that arrives early is held as cash and assumed to keep its value in today’s money.
- The pounds shown use the market-implied (breakeven) inflation curve. It is a market price, not a forecast.
- Coupons and repayments in a year are counted as one annual payment.
- Read the full method.
5Risks and limitations
- Selling early. A gilt sold before it matures fetches the market price on the day. You could get back less than you paid.
- The inflation protection holds only to maturity. An early sale may not keep up with prices.
- Inflation lag. Payments follow the RPI a few months late (three months for most gilts, eight for the oldest).
- RPI reform. From 2030 the RPI is due to be calculated like CPIH, which has historically risen more slowly.
- It stops. Nothing is paid after the last year, however long you live.
- Tax and costs. All figures are before tax and dealing costs.
- Everything the figures leave out.

–, –––

Both ladders cost the same amount today.
They usually start with similar payments.
Flat: a fixed number of pounds. You carry the inflation risk.
Inflation-uplifted: payments rise with the RPI, whatever inflation turns out to be.
–

Income each year

Inflation-uplifted Flat

Learn more, step by step

1Why they start at about the same
- The market prices the two kinds of gilt against each other.
- If inflation turns out as the market expects, both cost about the same for the same payments.
- That expected rate is the “breakeven” inflation rate: about – a year here.
- If the income starts straight away, the first payments can differ more.
2Who carries the inflation risk
- Flat ladder: you do. If inflation is high, the payments buy less.
- If inflation is lower than expected, the flat ladder comes out ahead.
- Inflation-uplifted ladder: the payments move with the RPI, so their buying power is protected.
- Neither ladder is protected against selling early. Both are fixed only if held to maturity.

3The figures side by side

	Flat	Inflation-uplifted
First payment, –	–	–
Last payment, –	–	–
Each payment in today’s money	– → –†	–
Gilts in the ladder	–	–
Inflation-uplifted pays more in today’s money	–

† Estimate at today’s market-implied inflation of about – a year.
The flat ladder’s pounds are fixed. The inflation-uplifted ladder’s pounds depend on actual inflation.

4A ladder and an annuity
- A ladder pays for the years you choose, then stops.
- The gilts stay yours. They can be sold early, at the market price, and form part of your estate.
- An annuity from an insurer pays for as long as you live.
- An annuity usually cannot be reversed, and unless options are bought, nothing is left when payments stop.
- So a ladder carries the risk of outliving it; an annuity does not.
- Some people combine the two. Which fits, if either, is a personal decision; a regulated financial adviser can help.

How it is calculated

The full method, for those who want every detail.

1. The payment schedule

You choose the first and the last year of payments.
There is one payment in each year in between, all of the same size.
Flat ladder: the same number of pounds. Inflation-uplifted ladder: the same amount of today’s money.
How large that payment can be is what the calculator works out.

2. The gilts and their prices

It uses every conventional and index-linked gilt in issue at the pricing date.
Each is priced off the Bank of England’s nominal and real yield curves as at –.
The price includes interest built up since the last coupon (the “dirty” price).
These are model prices, not broker quotes. A real purchase would differ slightly, plus dealing costs.

3. Finding the cheapest set of gilts

The method is cash-flow matching, the same one our app uses.
Of all the sets of gilts that pay for every year, it picks the one that costs least today.
A set qualifies if, by each payment year, everything paid out so far covers everything owed so far.
Money that arrives before it is needed is kept and spent later.
One rule keeps it a ladder: a gilt only pays for the years from its own maturity up to the next year another gilt matures.
Technically this is a linear programme. It has a single best answer, which the calculator finds exactly.
When the income starts some years away, coupons received in the meantime go towards the first payments.
That is why low-coupon gilts tend to be chosen for a later start.
For index-linked gilts the same steps run in today’s money, using each gilt’s uprating to date (its indexation ratio).

4. Money held between payments

Gilts do not mature in every year, especially beyond the 2050s.
Coupons do not arrive exactly when payments are due.
Whatever arrives early is held until it is needed.
It is assumed to earn a short-term interest rate equal to inflation, so it keeps its value in today’s money.
Flat ladder: the market-implied (breakeven) inflation rate is used. Inflation-uplifted ladder: the cash simply holds its value.
Short-term rates have often been above inflation, but not always.
The most cash held, and any years with no maturing gilt, are listed under “The gilts in this ladder”.

More detail: why some years are paid from cash

Why a rule is needed.

Gilts are priced at market yields; cash held is assumed to earn only inflation.
A low-coupon (“deep-discount”) gilt can yield more than the gilts maturing after it, around the peak of the yield curve.
On those numbers, the cheapest plan could be one gilt whose repayment is held in cash for many years.
The income would then depend on cash, not gilts – what a ladder is meant to avoid.

The ladder rule.

A gilt’s repayment may only pay for the years from its own maturity up to the next year another gilt matures.
A year with a gilt of its own is never paid by buying more of an earlier gilt and holding the cash.

Why some years are still paid from cash.

If the income starts later, coupons arrive in the meantime. That money is kept and spent.
It goes first to years whose only gilt has a high coupon: paying that year from cash in hand costs less.
A year in which no gilt matures is paid from money received earlier too.

5. Scaling to your amount

Matching is linear: twice the income needs twice of every gilt.
The calculator matches a reference schedule, then scales it to cost exactly your amount.
The payment that falls out is the income shown.

6. Pounds and today’s money

Flat payments are known in pounds; inflation-uplifted payments are known in today’s money.
To show both on one basis, the calculator uses the market-implied (breakeven) RPI inflation curve of the same date.
It grows inflation-uplifted payments at that rate to estimate them in pounds.
It shrinks flat payments at that rate to estimate them in today’s money.
Those figures are estimates. The curve is the market’s price of inflation, not a forecast.
The curve starts at three years, so the first two years use the three-year rate.

What the figures leave out

Tax. All figures are before tax. How gilts are taxed depends on your circumstances and the account that holds them.
Costs. No dealing charges, platform fees or bid–offer spread are included.
Timing within the year. Gilts pay coupons twice a year. The calculation counts each year’s cash flows as one annual payment.
The inflation lag. Index-linked payments follow the RPI a few months late: three months for most gilts, eight for the oldest. From 2030 the RPI is due to be calculated like CPIH, which has historically risen more slowly.
Selling early. The payments are fixed only if every gilt is held to maturity. Sold early, a gilt fetches the market price on the day, which may be more or less than was paid.
Prices move. The calculator uses prices from one date. Gilt prices change every day.
Nothing after the last year. The ladder pays nothing beyond its last payment. Any material amount left over is shown with the gilts.
Interest on cash held. Cash held between payments is assumed to earn exactly inflation. If it earns less, later payments would fall short.

Where the data comes from

Gilt details (coupon, maturity, indexation) come from the UK Debt Management Office’s list of gilts in issue.
Prices and the breakeven inflation curve come from the Bank of England’s yield curve data as at –.
The figures on this page were last refreshed on –.
More in our detailed methodology.

Your whole plan, not just the gilts

The Allocatewise app builds a gilt ladder against your own spending plan, State Pension and savings.
It tests the rest of your portfolio against thousands of market scenarios.

Explore the app

Capital at risk. The value of investments can fall as well as rise and you may get back less than you invest. Past performance is not a reliable guide to future returns. The figures shown are illustrative examples based on model assumptions and market data; they are provided for general information only and do not constitute financial, investment, tax or legal advice, a personal recommendation, or a financial promotion. The gilts listed are an illustration of cash-flow matching and are not a recommendation to buy, sell or hold, nor an endorsement of, or a reflection on the merits of, any gilt shown; you are under no obligation to act on it. Allocatewise is not authorised or regulated by the Financial Conduct Authority. Figures are shown before tax and do not reflect your personal tax position. If you are unsure whether an investment is right for you, seek advice from a regulated financial adviser. See our full disclaimer.