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7 January 2022 last updated

Gilt yields higher as central banks may raise rates faster than expected

Gilt yields higher as central banks to raise rates
Standard rates:  
annuity rates change 0.05%
Enhanced rates:  
annuity rates change 0.63%
Gilt yields:  
annuity rates change 17 basis point
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15-year gilt yields chart - Based on figures for December 2021
Latest gilt yield chart

Annuity Rates UK - December 2021 review

Annuity rates increased on average by 0.35% from providers as gilt yields increased 17 basis points as investors expect central banks to raise base rates faster than expected due to higher inflation.

US inflation PCE index is based on a 12-month change and increased to 5.7% in November up from 5.0% in the previous month, which is the highest rate since 1982.

As a result the 15-year gilt yields has increased 36 basis points since the start of December to 1.33% by 7 January 2022 as investors expect the Federal Reserve to raise base rates more aggressively this year.

Investors are less concerned about the Covid variant Omicron which is more contagious than the Delta variant but appears not to create more serious illness.

Find related news here:
Annuity rates decrease due to investor fears over Omicron variant
Pension annuities could fall over 1pc with new Covid variant Omicron

Providers of standard annuities increased annuity rates by an average of 0.05% for this month and we would expect rates to rise by 1.65% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have decreased their rates by an average of 0.63% and we would expect rates to rise by 1.67% 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   79%
annuity rates no change   7%
annuity rates decrease   14%
Increases of:
max 5.4%


Decreases of:
max -3.2%

  Fig 1: Annuity rate changes for the whole market

For the month 79% of annuity rates increased by up to 5.4% with 7% remaining unchanged and 14% decreasing by as much as to -3.2%.

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 0.97% to 1.14% or 18 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 - November 2021
Day Rate (%) Change (bp*)
1 0.99 +2
2 0.99 0
3 0.91 -8
6 0.89 -2
7 0.88 -1
8 0.92 +4
9 0.93 +1
10 0.92 -1
13 0.88 -4
14 0.91 +3
15 0.93 +2
16 0.94 +1
17 0.95 +1
20 0.97 +2
21 1.07 +10
22 1.08 +1
23 1.11 +3
24 1.10 -1
29 1.20 +10
30 1.16 -4
31 1.14 -2
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
Annuities rise even after yields fall due to higher interest rates concerns
Annuity rates could rise 3.2pc with strong increase in gilt yields
Bank of England could raise base rates sending gilt yields higher
Annuity Rates
  Age Single Joint  
  55 £5,736 £5,481  
  60 £6,132 £5,880  
  65 £6,860 £6,462  
  70 £7,678 £7,215  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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