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7 December 2016 last updated
Pension annuities 5% higher from providers with strong gilts recovery
15-year gilt yields chart
Based on figures for November 2016
Latest gilt yield chart

Providers of pension annuities have increase rates by over 5% as the 15-year gilt yields continue to rise with investors expecting higher inflation and interest rates from the US Fed.

Standard rates:  
annuity rates up 5.76%
Enhanced rates:  
annuity rates up 4.78%
Gilt yields:  
annuity rates up 18 basis point

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Annuities up over 5% for November

There was another strong performance with annuity rates higher by over 5% for the month of November following investor expectation of higher inflation and a sell off of government debt pushing gilt yields higher.

Providers have greater margin and are more competitive with Canada Life, Aviva, Hodge Lifetime and Legal & General raising their rates to match Just Retirement. The 15-year gilt yields increased to their highest level since Brexit of 1.79% up 18 basis points.

Standard providers increase rates by an average of 5.76% and we would expect in the medium term of six months rates may increase further by 0.12%.

For smoker and enhanced annuity providers increased their rates by an average of 4.78% on average and in the medium term of six months rates may increase by 2.09%.

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:
up to 8.3%

  Decreases of:
up to 0%
  Fig 1: Annuity rate changes for the whole market

For the month of November 100% of annuity rates increased by up to 8.3% as providers are now more aggressive at increasing rates with 0% decreasing 0% remaining unchanged.

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

Standard annuities increased by an average of 5.76% during the month. For those aged 75 rates were higher by 8.3% on a single with 10 year guarantee basis and 7.6% with no guaranteed period. No annuity rates decreased.

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 enhanced and smoker providers rates increased by an average of 4.78% with a larger rise of 6.8% for those aged 55 buying single life, 3% escalating annuities. No annuity rates decreased.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 1.61% to 1.79% or 18 basis points. Fig 2 below shows the daily 15-year gilt yields and the increase or decrease from the previous day's close:

15-Year Gilt Yields - November 2016
Day Rate (%) Change (bp*)
01 1.66 +5
02 1.56 -10
03 1.58 +2
04 1.50 -8
07 1.58 +8
08 1.61 +3
09 1.63 +2
10 1.72 +9
11 1.73 +1
14 1.78 +5
15 1.73 -5
16 1.73 0
17 1.77 +4
18 1.82 +5
21 1.79 -3
22 1.75 -4
23 1.82 +7
24 1.81 -1
25 1.81 0
28 1.79 -2
29 1.76 -3
30 1.79 +3
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
Annuities up 7% as yields recover after election of Donald Trump
Enhanced annuity rates up 2.4% as gilt yields recover from Brexit
UK annuities could rise 5% as US bond selloff sends yields higher
Retirement annuity rates could fall as Bank starts more QE
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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