Yields rise further as central banks plan for more interest rate hikes

15-year gilt yields chart - Based on figures for June 2023

Annuity Rates UK - June 2023 review

Providers of standard annuities increase rates by +3.02% on average following a further +10 basis point rise in the 15-year gilt yields. In contrast enhanced annuity rates are higher by an average of 0.47%.

Investors were surprised by comments made by the Federal Reserve that the median expectation for interest rates is 5.6% indicating several more hikes were required when one was expected.

Chairman Jerome Powell has started it was "strongly committed" to driving inflation down to the 2% target and that there was still a long way to go towards this objective.

Find related news here:
Gilt yields up 44 basis points as central banks to raise interest rates
Annuities rise 4pc with soaring gilt yields due to high inflation for longer

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 3.08%. The highest increase during May is for a 65 year old purchasing a 50% joint life and 3% escalating annuity up 5.57%.

Providers of standard annuities increased annuity rates by an average of +3.02% for this month and we would expect rates to fall by -2.02% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of +0.47% and we would expect rates to rise by +0.53% 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   78%   3%   19% Increases of: max 5.5%   Decreases of: max -1.6%

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