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8 September 2023 last updated

Annuities rise 1.5pc with record yields expecting higher interest rates

Annuity rates rise with record yields
 
Standard rates:  
annuity rates change 1.54%
Enhanced rates:  
annuity rates change 1.10%
Gilt yields:  
annuity rates change 10 basis point
 
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15-year gilt yields chart - Based on figures for August 2023
Latest gilt yield chart

Annuity Rates UK - August 2023 review

Standard annuities edge higher by 1.5% on average as gilt yields reach a record high of 5.01% on 17 August 2023 as investors expect higher interest rates for longer from central banks. The latest rise in August is in addition to the 12% increase from April to June.

The last time 15-year gilt yields breached five percent was October 2022 when the mini budget caused turmoil in the financial markets, sending annuity rates to a fourteen year high.

Investors expect the Federal Reserve to leave US interest rates at current levels as inflation has reduced to 3.2%. In contrast inflation in the UK is reducing from a higher point and remains at 6.8%, well about the target of 2.0%.

The Bank of England is very likely to raise base rates by 0.25% in September 2023. A further rise in UK interest rates is expected either in November or December and these increases have been priced-in to gilt yields.

Find related news here:
Gilt yields soar to record 5% as providers resist higher annuity rates
Pension annuities fall after lower than expected inflation hits gilt yields

Our benchmark example for a 65 year old using £100,000 to purchase a single life and level annuity remains at a fourteen year high and has increased 1.04%. The highest increase during August is for a 55 year old purchasing a single life and 3% escalating annuity up 5.10%.

Providers of standard annuities increased annuity rates by an average of +1.54% for this month and we would expect rates to fall by -0.54% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of +1.10% and we would expect rates to fall by -0.10% 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   58%
annuity rates no change   19%
annuity rates decrease   23%
Increases of:
max 5.1%

 

Decreases of:
max -2.4%

  Fig 1: Annuity rate changes for the whole market


For the month 58% of annuity rates increased by up to 5.1% with 19% remaining unchanged and 23% decreasing by as much as to -2.4%.

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 4.53% to 4.63% or +10 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 - August 2023
Day Rate (%) Change (bp*)
1 4.64 +11
2 4.62 -2
3 4.72 +10
4 4.66 -6
7 4.72 +6
8 4.65 -7
9 4.63 -2
10 4.62 -1
11 4.79 +17
14 4.82 +3
15 4.86 +4
16 4.90 +4
17 5.01 +11
18 4.94 -7
21 5.00 +6
22 4.92 -8
23 4.75 -17
24 4.69 -6
25 4.70 +1
28 4.70 0
29 4.70 0
30 4.69 -1
31 4.63 -6
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points
News related stories:
Annuity rates at risk as inflation falls and gilt yields 52 basis points lower
Yields rise further as central banks plan for more interest rate hikes
Annuity Rates
  Age Single Joint  
  55 £6,132 £5,784  
  60 £6,532 £6,234  
  65 £7,247 £6,808  
  70 £8,170 £7,616  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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