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2 October 2021 last updated

Annuity rates could rise 3.2pc with strong increase in gilt yields

Annuity rates could rise 3.2%
Standard rates:  
annuity rates change 0.03%
Enhanced rates:  
annuity rates change 0.38%
Gilt yields:  
annuity rates change 32 basis point
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15-year gilt yields chart - Based on figures for September 2021
Latest gilt yield chart

Annuity Rates UK - September 2021 review

Annuity rates could rise 3.2% in the short term as they are mainly based on gilt yields that are up 32 basis points following Bank of England indication that base rates could rise this year.

The 15-year gilt yields have increased 32 basis points from 0.92% to 1.24% during September after Bank of England Governor Andrew Bailey indicated a rise in base rates later this year was possible.

Inflation is rising faster than expected at 4% which is twice the 2% long term target and if is becomes more than a short term spike, the Bank of England would raise base rates resulting in higher gilt yields.

At the latest monetary policy committee (MPC) meeting there were also calls from two members to immediately halt of the £895 billion bond buying programme which was scheduled to continue until the end of the year.

Find related news here:
Bank of England could raise base rates sending gilt yields higher
Pension income recovers to levels seen before start of the lockdown

Providers of standard annuities increased annuity rates band on average this was 0.03% for this month and we would expect rates to increase by 3.17% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of -0.38% and we would expect rates to rise by 2.82% 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   50%
annuity rates no change   27%
annuity rates decrease   23%
Increases of:
max 2.4%


Decreases of:
max -1.2%

  Fig 1: Annuity rate changes for the whole market

For the month 50% of annuity rates increased by up to 2.4% with 27% remaining unchanged and 23% decreasing by as much as to -1.2%.

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 0.92% to 1.24% or 32 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 - September 2021
Day Rate (%) Change (bp*)
1 0.90 -2
2 0.89 -1
3 0.93 +4
6 0.91 -2
7 0.94 +3
8 0.96 +2
9 0.95 -1
10 0.97 +2
13 0.95 -2
14 0.93 -2
15 0.97 +4
16 1.01 +4
17 1.04 +3
20 0.99 -5
21 1.01 +2
22 1.00 -1
23 1.10 +10
24 1.12 +2
27 1.16 +4
28 1.20 +4
29 1.21 +1
30 1.24 +3
  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 £5,736 £5,481  
  60 £6,132 £5,880  
  65 £6,860 £6,462  
  70 £7,678 £7,215  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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