Annuity rates rise after gilt yields reach 2024 high as interest rate cut delayed

15-year gilt yields chart - Based on figures for January 2024

Annuity Rates UK - January 2024 review

Annuity rates are higher across the board as 15-year gilt yields increased +46 basis points to reach a high for 2024 of 4.41% after falling to 3.95% in December.

Providers increased annuity rates by as much as +4.7% for those aged 65 on 50% joint life with 3% escalation.

The rapid rise in gilt yields was due to analysts now expecting a delay in the first interest rate cut from March to June 2024 at the earliest with US consumer price index (CPI) inflation rising from 3.1% in November to 3.4% in December last year.

Strong economic data from the US showed jobless claims of 187,000, which is the lowest figure for 16 months and stronger than expected retail sales data. As a result the Federal Reserve stated interest rates are unlikely to be cut until the third quarter 2024.

In the UK CPI inflation reduced from 4.6% in October to 3.9% in November increasing to 4.0% in December 2023 and the Bank of England is in no hurry to raise interest rates.

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Providers of standard annuities increased annuity rates by an average of +1.51% for this month and we would expect rates to increase by +1.09% in the medium term if yields remain at current levels.

For smoker and enhanced annuity providers have increased their rates by an average of +2.90% and we would expect rates to decrease by -0.30% 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   92%   0%   8% Increases of: max 4.7%   Decreases of: max -1.5%

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