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6 June 2016 last updated
Best annuity rates fall as yields continue to reduce ahead of Brexit vote
15-year gilt yields chart
Based on figures for June 2016
Latest gilt yield chart

As gilt yields continue to reduce ahead of uncertainty over the Brexit vote, annuity rates from providers fall to new lows despite the Federal Reserve hint they may increase US interest rates.

Standard rates:  
annuity rates up 1.53%
Enhanced rates:  
annuity rates up 0.77%
Gilt yields:  
annuity rates up 17 basis point

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Brexit vote sees yilds and rates lower

The 15-year gilt yields were lower by 17 basis points for the month as the EU Referendum is now in focus. With the risk of a Brexit vote investors have been seeking safe havens such as bonds and gilts sending prices higher and yields lower.

Standard providers decreased rates by 1.53% and we would expect in the short term rates may rise by 2.93%.

For smoker and enhanced annuity providers decreased their rates by 0.77% on average and in the short term rates may rise by 2.17%.

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 increase   11%
annuity rates no change   0%
annuity rates decrease   89%
Increases of:
up to 2.0%

  Decreases of:
up to 6.6%
  Fig 1: Annuity rate changes for the whole market

The majority of rates increased with 4% rising, 26% remaining unchanged and 70% decreasing.

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

Standard annuities decreased by an average of 1.47% during the month with a larger decrease of up to 4.1%% for those aged 55-60 buying single life 3% escalating annuities.

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 enhanced and smoker providers rates most decreased by an average of 1.45% with a larger decrease of up to 6.6% for those aged 55-60 buying 50% joint life 3% escalating annuities. Only for those aged 65-70 on a single life on a level basis received up to a 2.0% rise in rates.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 2.10% to 1.93% or 17 basis point. Fig 2 below shows the daily 15-year gilt yields and the increase or decrease from the previous day's close:

15-Year Gilt Yields - May 2016
Day Rate (%) Change (bp*)
3rd 2.02 -8
4th 2.04 +2
5th 1.99 -5
6th 1.95 -4
9th 1.96 +1
10th 1.96 0
11th 1.95 -1
12th 1.96 +1
13th 1.92 -4
16th 1.94 +2
17th 1.92 -2
18th 1.99 +7
19th 1.99 0
20th 2.01 +2
23rd 2.00 -1
24th 2.01 +1
25th 1.98 -3
26th 1.94 -4
27th 1.95 +1
31st 1.93 -2
  Fig 2: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
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UK annuities could gain if Fed increase interest rates in June
Enhanced annuities lower as providers merge to form new group
Best annuity rates reduce by 4% from Just Retirement
Annuity Rates
  Age Single Joint  
  55 £4,250 £4,001  
  60 £4,700 £4,383  
  65 £5,503 £5,061  
  70 £6,173 £5,567  
£100,000 purchase, level rates, standard
Unisex rates and joint life basis
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