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12 April 2019 last updated

Enhanced annuity rates down over 3% as investors seek safe havens
Enhanced annuity rates down
  Providers reduce enhanced annuity rates by -3.31% following fall in 15-year gilt yields.
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Enhanced annuity rates have been reduced by -3.31% by providers as gilt yields fall 28 basis points after investors seek the safety of bonds and gilts with uncertainty over Brexit.

Providers of enhanced annuities have reduced rates by an average of -3.31% for the month of March in 2019 after a period of over a year maintaining income levels above expected levels.

Gilt yields and annuity rates
Fig 1: Chart comparing standard annuity rates and 15-year gilt yields

The above chat shows since February 2018 enhanced annuity rates have maintained income levels where the 15-year gilt yields moved lower during this period.

In the last two months providers have reduced rates by -4.41% with the majority of the decrease in March. Since February last year enhanced annuities have reduced -4.71% with gilt yields lower by -4.20%.

  Enhanced annuity rates and gilt yields
  Sep Oct Nov Dec Jan Feb Mar
Rate £5,957 £5,991 £5,986 £5,985 £5,985 £5,889 £5,721
Yield 1.71% 1.62% 1.63% 1.50% 1.43% 1.61% 1.33%

The above table shows that for our benchmark example of a 65 year old with £100,000 an annuity on a single life, level basis would provide an income of £5,721 pa in March. This compares to a stable period back to February 2018 when the income was £6,004 pa with little change until January 2019.

Annuities for enhanced and smoker rates with the largest reduction was -5.0% for those aged 55 purchasing a single life, escalating annuity. Other categories reducing 4.2% was for single life, level annuity for those aged 55 and 70 to 75.

Since reaching a low of 1.28% on 26 March the 15-year gilt yields have recovered in April with Brexit delayed until later in the year and improved economic data the US, China and the Eurozone.

The better than expected data means the risk of a global economic slowdown is less likely and investors have a greater appetite for risk in equities with the FTSE-100 index improving to 7,451.

An improvement in gilt yields to 1.51% on 12 April combined with rising equity values would benefit people retiring where they remain invested before buying their annuity, especially if providers revise annuity rates upwards later this month.

News related stories:
UK annuities could rise as investors leave safe havens
Gilt yields rise as Trump delays tariff on $200bn China trade
Pension annuities flat despite China reporting slow growth
Annuity rates resist fall in yields with fear of US slowdown
Gilt yields lower as equities fall sharply with geopolitical tensions
Annuity Rates
  Age Single Joint  
  55 £6,361 £5,898  
  60 £6,842 £6,244  
  65 £7,474 £6,843  
  70 £8,405 £7,660  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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