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5 November 2021 last updated

Annuities rise even after yields fall due to higher interest rates concerns

Pension annuities rise up to 2.67%
 
Standard rates:  
annuity rates change 2.67%
Enhanced rates:  
annuity rates change 2.52%
Gilt yields:  
annuity rates change 9 basis point
 
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15-year gilt yields chart - Based on figures for October 2021
Latest gilt yield chart

Annuity Rates UK - October 2021 review

Pension annuities have increased with standard rates higher by 2.67% even though the 15-year reduced by 9 basis points to 1.15% over the month after reaching a high of 1.40% on 9 October 2021.

Investors seek the safety of bonds and gilts as they are concerned about the impact on the global economy of higher interest rates ahead of the Federal Reserve meeting at the start of November.

Higher interest rates central banks would be necessary if inflation is higher than expected and for a longer period rather than being transitory.

The Federal Reserve is to start tapering the $80 billion Treasury purchases and $40 billion of mortgage backed securities sending long dated gilt yields significantly lower.

This has resulted in the flattening of the yield curve with includes short and long dated bonds and gilts as investors also consider when central banks will increase base rates to counter inflation risk.

The 15-year gilt yields have decreased 9 basis points from 1.24% to 1.15% during October and central banks plan to scale bank on bond purchases.

Find related news here:
Annuity rates could rise 3.2pc with strong increase in gilt yields
Bank of England could raise base rates sending gilt yields higher

Providers of standard annuities increased annuity rates by an average of 2.67% for this month and we would expect rates to fall by -1.21% in the medium term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of 2.52% and we would expect rates to rise by -0.51% in the medium 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   99%
annuity rates no change   0%
annuity rates decrease   1%
Increases of:
max 5.7%

 

Decreases of:
max -0.5%

  Fig 1: Annuity rate changes for the whole market


For the month 99% of annuity rates increased by up to 5.7% with 0% remaining unchanged and 1% decreasing by as much as to -0.5%.

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 1.24% to 1.15% or 9 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 - October 2021
Day Rate (%) Change (bp*)
1 1.23 -1
4 1.23 0
5 1.31 +8
6 1.29 -2
7 1.29 0
8 1.37 +8
11 1.40 +3
12 1.34 -6
13 1.27 -7
14 1.22 -5
15 1.30 +8
18 1.31 0
19 1.33 +2
20 1.33 0
21 1.38 +5
22 1.32 -6
25 1.32 0
26 1.28 -4
27 1.12 -16
28 1.13 +1
29 1.15 +2
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
Gilt yields increase as Federal Reserve signals tapering to start in 2021
Gilt yields fall as investors seek safe havens with spread of Delta variant
Annuity rates are highest for two years despite lower 15-year gilt yields
Annuity Rates
  Age Single Joint  
  55 £4,574 £4,142  
  60 £4,961 £4,610  
  65 £5,691 £5,238  
  70 £6,478 £6,098  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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