Pension annuities fall as recession fears send gilts 27 basis points lower

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

Annuity Rates UK - July 2022 review

Gilt yields reduced by -27 basis points for the month to 2.32% as investors seek safe havens due to rising fears of global recession as the US economy records a -0.9% drop in gross domestic product (GDP) for the second quarter after a -1.9% fall in the first quarter.

In June the 15-year gilt yields reached an eight year high of 2.92% as investors were focused on central banks increasing base rates to counter inflation before reducing and are now 60 basis points lower.

For the first half of 2022 investors have been selling government bonds and gilts in search of higher yields as interest rates increased.

The shift back to safe havens is a hedge against the risk of recession which is likely to continue for the second half of 2022 and could mean further falls in annuity rates.

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Providers of standard annuities decreased annuity rates by an average of -0.18% for this month and we would expect rates to fall by -2.52% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have decreased their rates by an average of -0.99% and we would expect rates to fall by -1.71% 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   45%   6%   49% Increases of: max 2.6%   Decreases of: max -4.7%

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