Annuity rates are better than they have been for a long time thanks to the UK’s sticky inflation problem. High inflation isn’t great, but one potential benefit is rising annuity rates, which rise or fall with gilt yields and interest rates. Last week the Bank of England reported that consumer price index inflation (CPI) in April fell from 10.1 per cent to 8.7 per cent, but this was higher than the 8.4 per cent it had forecast. As a result, it is almost certain that there will be further interest rate rises. Gilt (UK government bond) yields rose to levels close to those following last year’s mini-Budget.
Some annuity providers have already increased their rates. Taking the top annuity rates available as of 25 May, a 65-year-old could purchase a single-life, level, five-year guaranteed annuity paying an annual income of £6,791 for £100,000, according to Hargreaves Lansdown. Although this is less than the £6,994 on offer at the end of September last year in the aftermath of the ‘mini’ Budget, it is a lot more than autumn 2021’s £4,989. The tricky part is deciding whether to purchase now or to wait in the hope that UK interest and annuity rates might increase further. If you wait to buy, you might get an even higher rate, given the current economic environment.
But if inflation falls more than expected in the coming months, annuity rates could fall. And even if gilt yields and/or interest rates rise, individual providers might choose not to offer higher annuity rates to customers.