Annuities down 4pc with falling gilt yields expecting lower interest rates

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

Annuity Rates UK - December 2023 review

Annuities are down -4.42% as the 15-year gilt yields reduced by -65 basis points in December to end at 3.95% the lowest level since April 2023.

Gilt yields reduced after the Federal Reserve was more open to a lower interest rates in 2024 and the Bank of England decided to leave interest rates unchanged at 5.25% for the fourth month since 3 August 2023.

Analyst are expect the Federal Reserve to reduce interest rates three times starting in June 2024 or even earlier in March.

In the UK the Bank of England continues to say it does not intend to reduce rates even though inflation has reduced to a two year low of 3.9%, lower than expected.

Providers have reduced Annuity rates for three months in a row after reaching a fourteen high on 1 October 2023. Annuities remain historically high and providers could increase rates with more competition in 2024 and if gilt rates rebound after the steep falls.

Find related news here:
Annuity rates at risk with lower gilt yields as inflation falls to 3.9pc
Gilt yields reduce 53 basis points with no prospect of interest rate rise

Our benchmark example for a 65 year old using £100,000 to purchase a single life and level annuity remains at a fourteen year high even though rates decreased by -4.83% with income of £6,860 pa.

Providers of standard annuities decreased annuity rates by an average of -4.42% for this month and we would expect rates to decrease by -0.83% in the medium term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of -2.76% and we would expect rates to decrease by -0.99% in the medium 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   0%   2%   98% Increases of: max 0.0%   Decreases of: max -6.3%

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