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UK annuity rates – summer 2023 market update

Anyone even casually monitoring the UK retirement sector in recent months will have noticed that annuities are back in the headlines. The bottom-line news is that sales are booming, thanks to pension savers benefitting from especially high annuity rates.

The increase in annuity rates – and therefore the income that someone buying an annuity can generate from their pension fund – began in 2022. As early as July of that year, The Telegraph was reporting that ‘Interest rate rises are changing the way retirees should invest their savings’.

By October, Actuarial Post was reporting a 14-year high in annuity rates. They included an example from Canada Life in which a 30-year fixed term annuity bought with a £100,000 pension fund would pay £59,940 more income over that term compared to the same product bought at early 2022 rates.

Actuarial Post quoted Nick Flynn of Canada Life for an explanation of why rates had risen so sharply: “Annuities have made quite a comeback this year, with guaranteed lifetime income back in vogue following the strong improvement in rates. This has largely been driven by the positive shift in yields available on gilts, while competitors have also vied for market position.”

The trend continued throughout 2022, with The Times reporting ‘Annuity rates still going strong’ in December. They commented that: “Annuity sales are likely to remain high next year if gilt yields increase further.”

Annuity rates and sales have both continued strong in 2023. Data from the Association of British Insurers shows that UK retirees bought 16,256 annuities in the first three months of the year – 22% up on the same period in 2022.

In June, The Telegraph reported that: “A 65-year-old with £100,000 can currently buy an annuity paying £7,300 a year, the highest level since last year’s mini-Budget [of September 2022].” A month later, the Guardian quoted an industry expert as saying that there was “a good chance” of further increases.

It is worth looking at what the future may bring for gilt yields and interest rates, since there is a strong connection between them and annuity rates. On August 17, was reporting that the yield on 10-year British gilts hit its highest level since 2008. The previous day, Business Plus reported that: “The chances of rates rising to 6pc by the end of the year have also risen sharply.”

There are therefore indications of continuing high annuity rates, although the situation could change quickly if inflation and interest rates fall sooner than expected. UK annuity brokers Retirement Line provide a page on annuity rates on their website that regularly reports on the latest rates.

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