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4 August 2022 last updated

Pension annuities fall as recession fears send gilts 27 basis points lower

Pension annuities fall
 
Standard rates:  
annuity rates change 0.18%
Enhanced rates:  
annuity rates change 0.99%
Gilt yields:  
annuity rates change 27 basis point
 
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15-year gilt yields chart - Based on figures for July 2022
Latest gilt yield chart

Annuity Rates UK - July 2022 review

Gilt yields reduced by -27 basis points for the month to 2.32% as investors seek safe havens due to rising fears of global recession as the US economy records a -0.9% drop in gross domestic product (GDP) for the second quarter after a -1.9% fall in the first quarter.

In June the 15-year gilt yields reached an eight year high of 2.92% as investors were focused on central banks increasing base rates to counter inflation before reducing and are now 60 basis points lower.

For the first half of 2022 investors have been selling government bonds and gilts in search of higher yields as interest rates increased.

The shift back to safe havens is a hedge against the risk of recession which is likely to continue for the second half of 2022 and could mean further falls in annuity rates.

Find related news here:
Annuity rates rise by record 7pc last month as gilt yields weaken
Gilt yields fall 33 basis points off peak due to investor recession fears

Providers of standard annuities decreased annuity rates by an average of -0.18% for this month and we would expect rates to fall by -2.52% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have decreased their rates by an average of -0.99% and we would expect rates to fall by -1.71% 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
annuity rates decrease   45%
annuity rates no change   6%
annuity rates decrease   49%
Increases of:
max 2.6%

 

Decreases of:
max -4.7%

  Fig 1: Annuity rate changes for the whole market


For the month 45% of annuity rates increased by up to 2.6% with 6% remaining unchanged and 49% decreasing by as much as to -4.7%.

What happened to standard rates

Below shows a fund of £100,000 with the change in standard annuity rates for single and joint pensioners from age 55 to 75 with different annuity options such as level or escalating over 1 month compared to gilt yields:

Standard annuity 1 month changes
Fig 2: Change in standard rates last month compared to gilt yields


What happened to enhanced rates

Lifestyle smoker and enhanced annuities have decreased significantly across the board for all types of annuities and ages.

Enhanced annuity 1 month changes
Fig 3: Change in enhanced rates last month compared to gilt yields


For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month from 2.59% to 2.32% or -27 basis points. Table 1 below shows the daily 15-year gilt yields and the increase or decrease from the previous day's close:


15-Year Gilt Yields - July 2022
Day Rate (%) Change (bp*)
1 2.45 -14
4 2.56 +11
5 2.45 -11
6 2.49 +4
7 2.52 +3
8 2.63 +11
11 2.59 -4
12 2.55 -4
13 2.50 -5
14 2.54 +4
15 2.57 +3
18 2.63 +6
19 2.68 +5
20 2.66 -2
21 2.53 -13
22 2.43 -10
25 2.45 +2
26 2.43 -2
27 2.47 +4
28 2.37 -10
29 2.32 -5
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points
News related stories:
Gilt yields rise 2pc as expect central banks expected to increase rates
Annuity rates soar 19pc to highest level in six years as gilt yields rise
Annuity Rates
  Age Single Joint  
  55 £6,132 £5,784  
  60 £6,532 £6,234  
  65 £7,247 £6,808  
  70 £8,170 £7,616  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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