Gilt yields rise to 4.8pc as interest rates expected to remain higher for longer

15-year gilt yields chart - Based on figures for September 2023

Annuity Rates UK - September 2023 review

The 15-year gilt yields ends the month at a record high of 4.80% last attained 15 years ago. This exceeds the previous high in August of 4.63% and gilt yields briefly reached 5.01% on 17 August 2023 before ending the month at a lower level.

Enhanced annuities were higher by +2.21% on average after 15-year gilt yields rise 17 basis points as central banks remain hawkish to keep interest rates higher for longer. Standard annuities increased only +0.65% due to higher movements in previous months.

Inflation remains resilient with the US Federal Reserve and Bank of England indicating they may increase interest rates again before the end of the year.

Even so the 15-year gilt yields have only breached the five percent level briefly in August suggesting an upper limit. If this is the case annuity rates may be reaching the peak although could continue at this level for the remainder of the year.

Standard rates increased by only +0.65% after large improvements with annuities up +13.5% between April to August 2023.

Find related news here:
Annuities rise 1.5pc with record yields expecting higher interest rates
Gilt yields soar to record 5% as providers resist higher annuity rates

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 -0.2%. The highest increase during September is for a smoker aged 55 year old purchasing a single life and 3% escalating annuity up +6.37%.

Providers of standard annuities increased annuity rates by an average of +0.65% for this month and we would expect rates to rise by +1.05% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of +2.21% and we would expect rates to fall by -0.51% 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   73%   10%   17% Increases of: max 6.3%   Decreases of: max -1.2%

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