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3 June 2022 last updated

Ban on Russian oil sends gilt yields to 2.4pc and higher annuity rates

Gilt yields rise over 2pc
 
Standard rates:  
annuity rates change 2.51%
Enhanced rates:  
annuity rates change 2.36%
Gilt yields:  
annuity rates change 30 basis point
 
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15-year gilt yields chart - Based on figures for May 2022
Latest gilt yield chart

Annuity Rates UK - May 2022 review

Investors expect central banks and in particular the Federal Reserve to raise rates not only by 0.5% in June and July but also in September. This has sent the 15-year gilt yields higher by 30 basis points in May to 2.40% and the highest it has been for seven years.

This is due to the EU has agreeing a deal to ban Russian oil that arrives by sea by the end of the year amounting to two-thirds of all imports sending oil prices higher which could increase inflation.

In addition, Poland and Germany have pledged to stop oil imports by pipeline which could end a large source of funding for Russia reducing revenue by 90%.

Providers have responded to inflation fears, the Russian-Ukraine war and higher central banks base rates by increasing annuity rates. which have increased by 15.8% since the start of the year.

Find related news here:
Pension annuities up 23pc as base rates to rise due to higher oil prices
Gilt yields rise to 2pc as investors expect central banks to increase rates

Providers of standard annuities increased annuity rates by an average of 42.51% for this month and we would expect rates to rise by 0.49% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of 2.36% and we would expect rates to fall by 0.64% 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   100%
annuity rates no change   0%
annuity rates decrease   0%
Increases of:
max 4.8%

 

Decreases of:
max -0.0%

  Fig 1: Annuity rate changes for the whole market


For the month 100% of annuity rates increased by up to 4.8% with 0% remaining unchanged and 0% decreasing by as much as to -0.0%.

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 2.10% to 2.40% or 40 basis points. 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 2022
Day Rate (%) Change (bp*)
2 2.10 0
3 2.14 +4
4 2.15 +1
5 2.18 +3
6 2.22 +4
9 2.20 -2
10 2.10 -10
11 2.10 0
12 2.06 -4
13 2.01 -5
16 2.00 -1
17 2.12 +12
18 2.12 0
19 2.13 +1
20 2.15 +2
23 2.22 +7
24 2.15 -7
25 2.17 +2
26 2.24 +7
27 2.19 -5
30 2.26 +7
31 2.40 +14
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
Annuity rates soar 19pc to highest level in six years as gilt yields rise
Gilt yields rise 20 basis points as Federal Reserve to raise rates
Annuity Rates
  Age Single Joint  
  55 £4,574 £4,142  
  60 £4,961 £4,610  
  65 £5,691 £5,238  
  70 £6,478 £6,098  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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