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4 June 2021 last updated

Pension annuities and gilt yields rise as US economy registers high inflation

Pension annuities and yields rise
 
Standard rates:  
annuity rates change 0.51%
Enhanced rates:  
annuity rates change 1.32%
Gilt yields:  
annuity rates change 3 basis point
 
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15-year gilt yields chart - Based on figures for May 2021
Latest gilt yield chart

Annuity Rates UK - May 2021 review

Providers increase standard pension annuities by 0.51% during the month as investors sell gilts after the US economy registers the biggest rise in inflation since 2008.

US inflation has increased from 2.6% last month to 4.2% as well as the consumer price index increasing 0.8% in April which is higher than the market expected.

This could result in the Federal Reserve reducing quantitative easing and bond buying measures used to support the economy during the pandemic. As a result the 15-year gilt yields increased to 1.27% the highest for almost two years before reducing back.

Find related news here:
Gilt yields rise as GDP figures show US economy first quarter recovery
Pension annuities rise 3.2pc as investors sell gilts and bonds

Providers of standard annuities increased annuity rates by an average of 0.51% for this month and we would expect rates to fall by -0.91% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have reduced their rates by an average of -1.32% and rates and we would expect rates to rise by 0.92% 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   61%
annuity rates no change   17%
annuity rates decrease   22%
Increases of:
max 2.4%

 

Decreases of:
max -10.0%

  Fig 1: Annuity rate changes for the whole market


For the month 61% of annuity rates increased by up to 2.4% with 17% remaining unchanged and 22% decreasing by as much as to -10.0%.

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 1.19% to 1.15% or 4 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 - May 2021
Day Rate (%) Change (bp*)
4 1.14 -5
5 1.17 +3
6 1.15 -2
7 1.14 -1
10 1.15 +1
11 1.21 +6
12 1.26 +5
13 1.27 +1
14 1.23 -4
17 1.24 +1
18 1.24 0
19

1.22

-2
20 1.22 0
21 1.21 -1
24 1.19 -2
25 1.16 -3
26 1.12 -4
27 1.17 -5
28 1.15 -2
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
Retirement income recovers 30pc as UK eases lockdown measures
Enhanced annuity rates up over 6pc as providers adjust for higher yields
Gilt yields rise record amount of 60 basis points on inflation fears
Annuity Rates
  Age Single Joint  
  55 £3,851 £3,569  
  60 £4,268 £3,973  
  65 £4,965 £4,581  
  70 £5,831 £5,274  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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