17 May 2026 last updated

Annuities up 3.6pc to record high due to US-Iran war and inflation risk

Annuities rise 3.6% with higher yields due to US-Iran war, UK political risks and higher inflation.

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Annuities rise 3.6% this year to a record high with higher gilt yields due to the US-Iran war blockade of shipping and the risk of higher global inflation.

Pension annuities are mainly based on the 15-year gilt yields which have increased 72 basis points this year to an over twenty year peak of 5.60% on 15 May 2026 due to the US-Iran war blockade of shipping in the Strait of Hormuz.

For annuity rates our benchmark example increased +3.6% or +£275 pa to £7,933 pa by May 2026 compared to £7,658 pa in December 2025. This is based on a 65 year old using £100,000 to purchase a single life annuity and level income basis.

The US-Iran blockade means supplies of oil, gas and fertalisers cannot be delivered with oil prices rising 11% this week to $105 per barrel. This could increase further if President Trump decides to pressure Iran with further military action.

The longer the stalemate between the US and Iran continues without a deal the higher the risk of global inflation sending yields of government debt such as Treasury notes and gilt yields higher.

Find related news here:
Record high yields of 5.49pc with Trump strike threat and annuities rise
Gilt yields soar as Iran close Strait of Hormuz creating global fuel crisis

In addition, there is political uncertainty in the UK after the poor local election results for the Labour party and resulting leadership challenge. This has reduced investor confidence in the government's future to manage the country with investors selling gilts which also increases yields.

Both the US-Iran war and Labour party intent to change the Prime Minister are likely to continue in the medium term. For those retiring with pension funds this is a good time to benefit from record high annuity rates while gilt yields remain inflated.

Depending on age and features, annuity rate increases since the low in December 2021 have been as high as 119% for our benchmark example aged 55 years using £100,000 to purchase a 50% joint life and 3% escalation income.

Fig 1: Chart comparing annuity rates and 15-year gilt yields

The above chart shows our benchmark example for a 65 year old using £100,000 to purchase a single life and level income is currently at £7,933 pa and this income is a record +56% higher than the recent low in December 2021.

If gilt yields remain at the current levels it is possible for standard annuities to rise a further +1.3% and enhanced annuities increase +1.9% in the next month.

There is an expectation of rising global inflation due to higher oil, gas and fertiliser costs driving up the cost of travel, goods and food.

Investors expect central banks to raise interest rates and the Bank of England may increase base rates twice this year. Before the US-Iran war the chancellor Andrew Bailey was expecting to lower base rates.

After Labour's poor local election results, the Prime Minister Keir Starmer is in a weak position and investors are demand a higher yield to reflect risk of lending money to the UK government. This is likely to apply to any replacement to Keir Starmer if they intend to increase borrowing and 15-year gilt yields are likely to remain higher for longer.

In the long term, the Bank of England will return to lowering base rates from the current 3.75% to the target of 2% and this would lower gilt yields and annuities.

Pension fund values are currently at a relative high with the FTSE-100 index 17% higher than a year ago. This coupled with record high annuity rates makes this an ideal time to secure income from an annuity for anyone intending to retire soon.