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6 December 2024 last updated

Annuity rates rise 10pc this year to record sixteen year high after Budget
Annuity rates rise 10pc
 

Annuity rates rise +5% since the Budget to raise debt and up +10% since the start of the year.

 
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Annuity rates increase +10% this year to record sixteen year high as gilt yields peak at 4.88% driven up by the Labour Budget increase in debt.

Gilt yields reached a peak this year at 4.88% in November after the Labour Budget changed borrowing requirements allowing the Chancellor to access a further £50 billion per year.

As a result, providers increased annuity rates to record levels up +5% since September 2024 and +10% since the start of the year and expect the Bank of England to keep interest rates higher for longer with gilt yields to remain high during 2025.

Find related news here:
Annuities at record high even as gilt yields drift slightly lower to 4.55pc
Gilt yields at highest this year as Budget raises £50bn in extra debt

Our benchmark example for a 65 year old using £100,000 to purchase a single life and level income ended November at £7,540 pa a record sixteen year high.

This is an increase 4.97% or £357 pa from £7,183 pa in September to £7,540 pa in November and compared to the income at the start of the year of £6,860 pa has increased 9.91% or £680 pa.

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


The above chart shows our benchmark example for a 60 year old using £100,000 to purchase a single life and 3% escalating income is currently at £4,754 pa and this income is a record +75% higher than the recent low in December 2021.

This increased 7.60% or £336 pa from £4,418 pa in September to £4,754 pa in November and compared to the income at the start of the year of £4,245 pa has increased 11.99% or £509 pa.

The government extra borrowing of £50 billion per year will be used for infrastructure investments such as transport, electricity networks and power generation schemes.

Other changes in the Budget was an increase in employer National Insurance to 15% and reducing the income level where this tax starts from £9,100 to £5,000. This could be inflationary with higher cost of products and services going forward.

Following the Budget, the 15-year gilt yields peaked at 4.88% on 6 November the highest level this year. The Bank of England are unlikely to reduce interest rates quickly due to the higher cost of borrowing and gilt yields remain relatively high at 4.64%.

It is more likely annuities will remain at a sixteen year high for longer as government debt is raised through 2025 giving people retiring the opportunity to secure lifetime income at these elevated levels.

News related stories:
Annuities fall as gilt yields recover after Bank of England cut rates to 5pc
Gilt yields rise as Fed cut interest rate by 0.5pc larger than expected
BoE cut rates to 5pc sends yields lower and threat to annuities
Annuity Rates
  Age Single Joint  
  55 £6,343 £6,063  
  60 £6,771 £6,449  
  65 £7,540 £7,033  
  70 £8,488 £7,724  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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