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3 November 2023 last updated

Pension annuities reduce by 3pc as gilt yields remain volatile

Pension annuities reduce by 3%
 
Standard rates:  
annuity rates change 2.98%
Enhanced rates:  
annuity rates change 1.81%
Gilt yields:  
annuity rates change 8 basis point
 
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15-year gilt yields chart - Based on figures for October 2023
Latest gilt yield chart

Annuity Rates UK - October 2023 review

Providers reduced pension annuities by -3% even though the 15-year gilt yields reach a fifteen year record high of 5.13% as central banks state interest rates will remain higher for longer.

Gilt yields may have reached a plateau as volatility in October 2023 produced a 45 basis point range from 4.68% to 5.13% and ended the month 8 basis points higher.

Central banks did not increase interest rates in September even though interest rates remain high suggesting there are fewer increases expected. This could mean yields are lower in the future and as annuities are mainly based on the 15-year gilt yields providers may reduce rates further.

Find related news here:
Annuity rates reduce as gilt yields reach a record 5.13pc high
Gilt yields rise to 4.8pc as interest rates to remain higher for longer

Our benchmark example for a 65 year old using £100,000 to purchase a single life and level annuity remains at a fourteen year high although if has decreased by -4.61%.

Providers of standard annuities decreased annuity rates by an average of -2.98% for this month and we would expect rates to rise by +3.78% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of -1.81% and we would expect rates to increase by +2.61% 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   16%
annuity rates no change   2%
annuity rates decrease   82%
Increases of:
max 2.6%

 

Decreases of:
max -5.3%

  Fig 1: Annuity rate changes for the whole market


For the month 16% of annuity rates increased by up to +2.6% with 10% remaining unchanged and 82% decreasing by as much as to -5.3%.

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 4.80% to 4.88% or +8 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 - October 2023
Day Rate (%) Change (bp*)
2 4.93 +13
3 4.95 +2
4 4.93 -2
5 4.91 -2
6 4.95 +4
9 4.88 -7
10 4.79 -9
11 4.68 -11
12 4.77 +9
13 4.74 -3
16 4.84 +10
17 4.87 +3
18 5.00 +13
19 5.06 +6
20 5.03 -3
23 5.13 +10
24 4.91 -22
25 4.98 +7
26 4.96 -2
27 4.94 -2
30 4.93 -1
31 4.88 -5
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points
News related stories:
Annuities rise 1.5pc with record yields expecting higher interest rates
Gilt yields soar to record 5pc as providers resist higher annuity rates
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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