Gilt yields rise ignored by providers

Annuity rates are mainly based on the 15-year gilt yields which briefly reached their all time low level of 1.68% in February. For the month of April yields have increased by 14 basis points from 1.96% to 2.10%. As a general rule this would result in an increase in annuity rates of 1.4%, however, enhanced rates are lower by up to 2.5%.

The above table shows how the standard annuity rates have reduced in the last six months based on our benchmark example of a person aged 65 years old with a fund of £100,000 buying a lifetime annuity on a single life, level basis.

In October 2015 the annuity was £5,828 pa reducing 8.8% to £5,311 pa whereas yields have reduced only 13 basis points. Annuity rates would be expected to be lower by 1.3% which would suggest an over correction has occurred since March this year.

The fall in the rate since October 2015 for our benchmark example of £517 pa would reduce the lifetime of the annuitant. Based on the Office of National Statistics (ONS) we would expect a male to live for 17.3 years and he will have £8,944 less over his lifetime. For a female she can expected to live for 20.4 years increasing her income by £10,485.