Enhanced annuity rates up 5pc as gilt yields rise 50 basis points

15-year gilt yields chart - Based on figures for December 2022

Annuity Rates UK - December 2022 review

Enhanced annuity rates rise 5.03% ending the year close to October highs as 15-year gilt yields increased 50 basis points to 4.02%.

For certain ages and features annuity rates are even higher especially for joint life enhanced and standard annuities with escalation for those aged 55 to 70 rising 6% to over 9%.

For a 60 year old 50% joint life with 3% escalation the income is higher by 9.61% to £4,321 pa, even higher than the figure in October after the mini budget.

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For single life enhanced annuities income is higher than October for those aged 65 to 75 with the biggest rise by value for a 70 year old with 3% escalation rising £409 pa with income at a record £7,039 pa.

The 15-year gilt yields increased 50 basis points during December to 4.02% the highest closing for a month since September. Investors have concerns central banks intend to raise base rates further due to high inflation continuing in 2023.

Providers of standard annuities increased annuity rates by an average of +3.64% for this month and we would expect rates to rise by +1.36% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of +5.03% and we would expect rates to fall by -0.03% 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   98%   0%   2% Increases of: max 9.6%   Decreases of: max -3.5%

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