Annuity rates higher as investors more optimistic for the economy

15-year gilt yields chart - Based on figures for January 2021

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.

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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   41%   48%   11% Increases of: max 3.2%   Decreases of: max -2.1%

Fig 1: Annuity rate changes for the whole market

Fig 2: Change in standard rates last month compared to gilt yields

Fig 3: Change in enhanced rates last month compared to gilt yields