Pension annuities up 3pc as yields rise due to expected higher base rates

15-year gilt yields chart - Based on figures for April 2023

Annuity Rates UK - April 2023 review

Standard annuity rates are up 3.30% with higher gilt yields as investors are expecting the Bank of England to increase base rates by at least 0.25% in May.

Our benchmark example for a 65 year old using £100,000 to purchase a single life and level annuity remains at a twelve year high and has increased 4.11%. The highest increase is for a 75 year old purchasing a 50% joint life and level annuity increasing 7.91% in April.

Inflation in the UK remains in double figures at 10.1% although it was expected to fall further with 15-year gilt yields increasing by 24 basis points from 3.79% and ending April at 4.03%.

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Providers of standard annuities increased annuity rates by an average of +3.30% for this month and we would expect rates to fall by -0.20% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of +2.35% and we would expect rates to rise by +0.75% 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   97%   1%   2% Increases of: max 7.9%   Decreases of: max -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