Strong rise in annuity rates

Annities performed well in October with rates higher by 4% on average across the board and some specific rates recovering by over 10%. The 15-year gilt yields increased to their highest level since Brexit of 1.61% up 45 basis points.

The rise follows an expectation that the Federal Reserve will increase interest rates. In addition quantitative easing programmes in the UK, Japan and Europe and be complemented with fiscal stimulus to stimulate the economy.

Standard providers increase rates by an average of 4.04% and we would expect in the short term rates may increase further by 0.46%.

For smoker and enhanced annuity providers increased their rates by an average of 2.45% on average and in the short term rates may increase by 2.05%.

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   99%   0%   1% Increases of: up to 10.1%   Decreases of: up to 0.6%

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