Pension annuities fall 3pc with lower yields and talk of interest rate cuts

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

Annuity Rates UK - March 2024 review

Providers reduce standard pension annuities by an average of -3.38% as analysts focus on interest rate cuts after the Swiss central bank's easing monetary policy and reducing rates.

In a surprise move the Swiss National Bank is the first major central bank to cut interest rates on 21 March by -0.25% to 1.50%, its first cut in nine years after Swiss inflation reduced to 1.2% in February.

The Federal Reserve leaves interest rates unchanged and expects three interest rate cuts in 2024. The Bank of England also leaves interest rates unchanged for March.

In the UK consumer price index (CPI) inflation reduced from 4.0% in January to 3.4% in February and the focus is on the next major central bank to cut interest rates, possibly in June 2024.

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The 15-year gilt yields reduced -17 basis points from 4.45% last month to 4.28% and still remains relatively high.

Providers of standard annuities decreased annuity rates by an average of -3.38% for this month and we would expect rates to increase by +1.68% in the short term if yields remain at current levels.

For smoker and enhanced annuity providers have decreased their rates by an average of -1.56% and we would expect rates to decrease by -0.14% 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   2%   1%   97% Increases of: max 0.2%   Decreases of: max 6.2 %

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