Ban on Russian oil sends gilt yields to 2.4pc and higher annuity rates

15-year gilt yields chart - Based on figures for May 2022

Annuity Rates UK - May 2022 review

Investors expect central banks and in particular the Federal Reserve to raise rates not only by 0.5% in June and July but also in September. This has sent the 15-year gilt yields higher by 30 basis points in May to 2.40% and the highest it has been for seven years.

This is due to the EU has agreeing a deal to ban Russian oil that arrives by sea by the end of the year amounting to two-thirds of all imports sending oil prices higher which could increase inflation.

In addition, Poland and Germany have pledged to stop oil imports by pipeline which could end a large source of funding for Russia reducing revenue by 90%.

Providers have responded to inflation fears, the Russian-Ukraine war and higher central banks base rates by increasing annuity rates. which have increased by 15.8% since the start of the year.

Find related news here:
Pension annuities up 23pc as base rates to rise due to higher oil prices
Gilt yields rise to 2pc as investors expect central banks to increase rates

Providers of standard annuities increased annuity rates by an average of 2.51% for this month and we would expect rates to rise by 0.49% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of 2.36% and we would expect rates to fall by 0.64% 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   100%   0%   0% Increases of: max 4.8%   Decreases of: max -0.0%

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