Annuities rise even after yields fall due to higher interest rates concerns

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

Annuity Rates UK - October 2021 review

Pension annuities have increased with standard rates higher by 2.67% even though the 15-year reduced by 9 basis points to 1.15% over the month after reaching a high of 1.40% on 9 October 2021.

Investors seek the safety of bonds and gilts as they are concerned about the impact on the global economy of higher interest rates ahead of the Federal Reserve meeting at the start of November.

Higher interest rates central banks would be necessary if inflation is higher than expected and for a longer period rather than being transitory.

The Federal Reserve is to start tapering the $80 billion Treasury purchases and $40 billion of mortgage backed securities sending long dated gilt yields significantly lower.

This has resulted in the flattening of the yield curve with includes short and long dated bonds and gilts as investors also consider when central banks will increase base rates to counter inflation risk.

The 15-year gilt yields have decreased 9 basis points from 1.24% to 1.15% during October and central banks plan to scale bank on bond purchases.

Find related news here:
Annuity rates could rise 3.2pc with strong increase in gilt yields
Bank of England could raise base rates sending gilt yields higher

Providers of standard annuities increased annuity rates by an average of 2.67% for this month and we would expect rates to fall by -1.21% in the medium term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of 2.52% and we would expect rates to rise by -0.51% 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   99%   0%   1% Increases of: max 5.7%   Decreases of: max -0.5%

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