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8 February 2021 last updated

Annuity rates higher as investors more optimistic for the economy

Annuity rates higher
 
Standard rates:  
annuity rates change 0.21%
Enhanced rates:  
annuity rates change 0.75%
Gilt yields:  
annuity rates change 14 basis point
 
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15-year gilt yields chart - Based on figures for January 2021
Latest gilt yield chart

January 2021 Review

Providers have increased annuity rates with rising 15-year gilt yields up 14 basis points to 0.54% as investors are more optimistic for the economy.

There has been developments of more vaccines with the latest from Johnson & Johnson which is 66% effective and Novavax is 89% effective at preventing Covid-19 offers greater hope of society returning to some normality.

Find related news here:
Successful vaccine for Covid-19 sends gilt yields higher
Annuity rates could rise as gilt yields bounce back with vaccine results

The 15-year gilt yields increased by 14 basis points to 0.54% during January as investors were optimistic for economic growth returning during this year with more successful vaccines in trials.

Providers of standard annuities increased annuity rates by an average of 0.21% for this month and we would expect rates to rise by 1.19% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of 0.75% and rates and we would expect rates to rise by 0.65% in the short term if yields do not fall.

Fig 1 below shows the annuity rates changes for the whole market and the proportion that have either increased, decreased or or did not change. It also shows the range of the changes of the annuity rates over the last month:

Annuity Rates Changes
Increase No change Decrease
annuity rates decrease   41%
annuity rates no change   48%
annuity rates decrease   11%
Increases of:
max 3.2%

 

Decreases of:
max -2.1%

  Fig 1: Annuity rate changes for the whole market


For the month 41% of annuity rates increased by up to 3.2% with 48% remaining unchanged and 11% decreasing by as much as to -2.1%.

What happened to standard rates

Below shows a fund of £100,000 with the change in standard annuity rates for single and joint pensioners from age 55 to 75 with different annuity options such as level or escalating over 1 month compared to gilt yields:

Standard annuity 1 month changes
Fig 2: Change in standard rates last month compared to gilt yields


What happened to enhanced rates

Lifestyle smoker and enhanced annuities have decreased significantly across the board for all types of annuities and ages.

Enhanced annuity 1 month changes
Fig 3: Change in enhanced rates last month compared to gilt yields


For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month from 0.40% to 0.54% or 14 basis point. Table 1 below shows the daily 15-year gilt yields and the increase or decrease from the previous day's close:


15-Year Gilt Yields - January 2021
Day Rate (%) Change (bp*)
4 0.38 -2
5 0.43 +5
6 0.46 +3
7 0.51 +5
8 0.51 0
11 0.53 +2
12 0.57 +4
13 0.52 -5
14 0.50 -2
15 0.50 0
18 0.51 +1
19 0.51 0
20 0.52 +1
21 0.53 +1
22 0.53 0
25 0.48 -5
26 0.49 +1
27 0.48 -1
28 0.5 +2
29 0.54 +4
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
Annuities at risk with volatile gilts due to Covid-19 restrictions in Europe
Fear of new Covid-19 restrictions in Europe sends gilt yields lower
Providers raise annuity rates as gilt yields bounce 22 basis points
Annuity Rates
  Age Single Joint  
  55 £3,620 £3,320  
  60 £4,081 £3,783  
  65 £4,786 £4,382  
  70 £5,656 £5,102  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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