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7 July 2014 last updated
Annuity rates rise for the first time since Budget changes
15-year gilt yields chart
Based on figures for June 2014
15-year gilt yields May 2014
 

Providers of annuities have increased rates for the first time since George Osborne proposed radical pension rule changes in the March Budget and aiming to implement these from April 2015.

Standard rates:  
annuity rates up 0.56%
Enhanced rates:  
annuity rates up 0.73%
Gilt yields:  
annuity rates up 8 basis point



 
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Gilt yields recover to help annuities higher

The 15-year gilt yields increased by 8 basis point during the month followed by higher rates from providers for both standard and smoker and enhanced annuities. As a general rule an 8 basis point rise would result in a 0.8% rise in annuity rates.

There was a rise in yields by 16 basis points to 3.22%
driving annuities higher but with an unexpected fall in retail sales to the lowest level since January and US GDP shrinking by 2.9% in the first quarter yields reduced to show only a modest improvement.

Standard providers increased their rates on average by 0.56% and we would expect so see further improvement of 0.24% in the short term but in the medium term of 3 months annuity rates will decrease by 0.58%.

Smoker and enhanced annuity providers increased their rates by 0.73% on average and an increase of 0.07% is possible in the short term but in the medium term of 3 months we can expect a slightly improved increase of 0.16%.

Equity markets started at 6,844 and decreased by 100 points to end at 6,744. This represents a 1.46% fall and for people that remain invested have seen lower fund values which would be slightly offset by higher annuity rates.

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 increase   71%
annuity rates no change   7%
annuity rates decrease   12%
Increases of:
up to 1.6%

  Decreases of:
up to 2.1%
  Fig 1: Annuity rate changes for the whole market

Annuities improved across the board for both standard as well as enhanced and smoker annuities. Decreases occurred only for standard escalating rates for single life annuities aged 65 to 70.

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

Standard annuities increased across the board except for single and joint life escalating annuities where there were decreases of up to 2.1%.

What happened to enhanced rates

Lifestyle smoker and enhanced annuities have increased and although some areas remained unchanged such as 100% joint life with a 10-year guaranteed period.

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

The largest increase was from single life with 3% escalation up by 1.6% for those aged 55 to 60. Impaired providers increased their rates by up to 1.0%. See Annuity Rates Review For the latest updates.

Changes to the 15-year gilt yields

For June the yields range for the month was from 3.06% to 3.22% or 16 basis points which is similar to the last month. Fig 2 below shows the daily 15-year gilt yields and the increase or decrease from the previous day's close:



15-Year Gilt Yields - June 2014
Mon 2nd Tues 3rd Wed 4th Thurs 5th Fri 6th
3.11%
gilt yields up   0.05
3.14%
gilt yields up   0.03
3.17%
gilt yields up   0.03
3.16%
gilt yields down   0.01
3.15%
gilt yields down   0.01
Mon 9th Tues 10th Wed 11th Thurs 12th Fri 13th
3.18%
gilt yields up   0.03
3.20%
gilt yields up   0.02
3.19%
gilt yields down   0.01
3.19%
gilt yields no change
3.21%
gilt yields up   0.02
Mon 16th Tues 17th Wed 18th Thurs 19th Fri 20th
3.20%
gilt yields down   0.01
3.22%
gilt yields up   0.02
3.19%
gilt yields down   0.03
3.19%
gilt yields no change
3.22%
gilt yields up   0.03
Mon 23rd Tues 24th Wed 25th Thurs 26th Fri 27th
3.19%
gilt yields down   0.03
3.19%
gilt yields no change
3.12%
gilt yields down   0.07
3.11%
gilt yields down   0.01
3.11%
gilt yields no change
Mon 30th        
3.14%
gilt yields up   0.03
       
  Fig 2: Daily 15-year gilt yields and changes

News related stories:
Enhanced annuities fall as Bank of England resist interest rate rise
Radical changes to pension annuities announced in Chancellor's Budget

Annuity Rates
  Age Single Joint  
  55 £4,216 £3,974  
  60 £4,702 £4,423  
  65 £5,453 £5,013  
  70 £6,105 £5,482  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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