Annuity rates could rise 3.2pc with strong increase in gilt yields

15-year gilt yields chart - Based on figures for September 2021

Annuity Rates UK - September 2021 review

Annuity rates could rise 3.2% in the short term as they are mainly based on gilt yields that are up 32 basis points following Bank of England indication that base rates could rise this year.

The 15-year gilt yields have increased 32 basis points from 0.92% to 1.24% during September after Bank of England Governor Andrew Bailey indicated a rise in base rates later this year was possible.

Inflation is rising faster than expected at 4% which is twice the 2% long term target and if is becomes more than a short term spike, the Bank of England would raise base rates resulting in higher gilt yields.

At the latest monetary policy committee (MPC) meeting there were also calls from two members to immediately halt of the £895 billion bond buying programme which was scheduled to continue until the end of the year.

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Providers of standard annuities increased annuity rates band on average this was 0.03% for this month and we would expect rates to increase by 3.17% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of -0.38% and we would expect rates to rise by 2.82% 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   50%   27%   23% Increases of: max 2.4%   Decreases of: max -1.2%

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