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8 November 2016 last updated
Best annuities up 4% from providers as gilt yields rise
15-year gilt yields chart
Based on figures for October 2016
Latest gilt yield chart

Best annuity rates are up 4% on average with some even higher as providers react to the strong rise in the 15-year gilt yields higher by 45 basis points recovering from the falls following Brexit.

Standard rates:  
annuity rates up 4.04%
Enhanced rates:  
annuity rates up 2.45%
Gilt yields:  
annuity rates up 45 basis point

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Strong rise in annuity rates

Annities performed well in October with rates higher by 4% on average across the board and some specific rates recovering by over 10%. The 15-year gilt yields increased to their highest level since Brexit of 1.61% up 45 basis points.

The rise follows an expectation that the Federal Reserve will increase interest rates. In addition quantitative easing programmes in the UK, Japan and Europe and be complemented with fiscal stimulus to stimulate the economy.

Standard providers increase rates by an average of 4.04% and we would expect in the short term rates may increase further by 0.46%.

For smoker and enhanced annuity providers increased their rates by an average of 2.45% on average and in the short term rates may increase by 2.05%.

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   99%
annuity rates no change   0%
annuity rates decrease   1%
Increases of:
up to 10.1%

  Decreases of:
up to 0.6%
  Fig 1: Annuity rate changes for the whole market

For the month of October 77% of annuity rates increased by up to 10.1% following investor selloff of US government bonds with only 1% decreasing by up to 0.6% and 0% remaining unchanged.

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 increased by an average of 4.04% during the month. For those aged 55 rates were higher by 10.1% on a single with 3% escalating basis and 9.7% for 50% joint with 3% escalating annuities. No annuity rates decreased.

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 increased by an average of 2.45% with a larger rise of 4.0% for those aged 60 buying 50% joint life, level and 3% escalating annuities. The largest decrease was for 50% joint life aged 55 buying 3% escalating annuities lower by 0.6%.

For the latest updates see Annuity Rates Review.

Changes to the 15-year gilt yields

The yields change for the month was from 1.16% to 1.61% or 45 basis points. 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 - October 2016
Day Rate (%) Change (bp*)
3rd 1.13 -3
4th 1.19 +6
5th 1.21 +2
6th 1.28 +7
7th 1.37 +9
10th 1.39 +2
11th 1.35 -4
12th 1.43 +8
13th 1.40 -3
14th 1.46 +6
17th 1.48 +2
18th 1.44 -4
19th 1.45 +1
20th 1.45 0
21st 1.45 0
24th 1.45 0
25th 1.46 +1
26th 1.52 +6
27th 1.59 +7
28th 1.62 +3
31st 1.61 -1
  Table 1: Daily 15-year gilt yields and changes
* bp - basis points

News related stories:
UK annuities could rise 5% as US bond selloff sends yields higher
Retirement annuity rates could fall as Bank starts more QE
Pension annuities lower by 9% over the year from leading providers
UK annuities could gain if Fed increase interest rates in June
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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