What a move in gilt yields is worth in pounds
Saying that annuity rates follow gilt yields is true and not very useful. The table below makes it concrete: it takes the whole yield curve, shifts it by the amount in the first column, and re-prices the benchmark annuity, £100,000 at 65, single life, level, five-year guarantee. Everything else is held still.
| If gilt yields were | Yearly income from £100,000 | Difference |
|---|---|---|
| 1 percentage point lower | £7,171 | −£699 a year |
| 0.5 percentage points lower | £7,518 | −£352 a year |
| 0.25 percentage points lower | £7,693 | −£176 a year |
| where they are today | £7,869 | — |
| 0.25 percentage points higher | £8,047 | +£177 a year |
| 0.5 percentage points higher | £8,225 | +£356 a year |
| 1 percentage point higher | £8,585 | +£715 a year |
Half a percentage point on yields, which is an ordinary few months in the bond market rather than a crisis, is worth about £356 a year on a £100,000 pot. Over a twenty-year retirement that is roughly £7,116 of income turning on the week you happened to buy. It is the single strongest argument for not treating the purchase date as an administrative detail, and equally the reason that buying in stages over several years appeals to people who would rather not stake the whole outcome on one morning’s yields.
What this index is, and what it is not
It is a model. Each working day it takes the Bank of England’s published zero-coupon gilt yields, applies the mortality assumptions insurers use and the spread they charge, and works out what the best annuity on the market ought to pay. It is calibrated against a published best-buy table and reproduces it to within about 2%.
It is not a quote, it is not an offer, and it is not a record of what any particular insurer paid on any particular day. Three things separate it from what you would actually be offered:
- Best buy against market average. This index tracks the best rate available. The average across all providers is roughly 3.5% lower, which is about £275 a year on £100,000 at 65.
- You. Health, smoking, weight, medication and postcode routinely move an individual rate by more than a year of market movement does, almost always upwards when they are declared.
- The options. Joint life, escalation, guarantee periods and value protection all reduce the starting income, and the figures here have none of them beyond a five-year guarantee.
Why the timing question is harder than it looks
Three forces pull in different directions, and only one of them is predictable.
- Age is predictable and works in your favour. Each year older shortens the expected payment period, which raises the rate by a few per cent through your sixties and faster after that.
- Yields are not predictable at all. The table above shows that an ordinary market move swamps a year of ageing in either direction.
- Waiting costs income. A year not taken is a year not paid, and for most people that is the largest of the three numbers.
None of that produces a rule, which is why this page shows the history rather than a verdict. Anyone weighing the decision itself can get free, impartial guidance from Pension Wise for anyone over 50, and comparison figures from the government-backed MoneyHelper service, both without charge.
Questions people ask
Why is the rate I have been offered lower than the figure on this page?
The table is an estimate of the best rate on the market for someone in good health with an average postcode, and most offers are not the best rate on the market. The provider you saved with has no obligation to compete for your business, and the market average sits around 3.5% below the best buy before anything specific to you is taken into account. Your own age, health, postcode and the options you chose then move the figure further in either direction.
How often does this page change?
The gilt yields behind it are published by the Bank of England every working day and this page picks them up twice a day, so the benchmark moves on any day the bond market moves. Published best-buy tables from insurers typically update weekly, which is why this index tends to show a turn a few days before the tables do. Nothing here is a quoted rate: it is a model of where rates should be, given the yields.
What is the difference between a best-buy rate and a market average?
The best-buy rate is the highest income available anywhere on a given day for a standard set of options. The market average includes every provider, including those that are not really trying to win new business. The gap is currently about 3.5%, which on £100,000 at 65 is roughly £275 a year, for the rest of your life, for the sake of shopping around.
Do annuity rates follow the Bank of England base rate?
Only loosely. Annuities are priced off long-dated gilt yields, typically fifteen to twenty-five years out, because that is roughly the period the insurer has to cover. Bank Rate is an overnight rate. They tend to move in the same direction over long periods, but they can and do move opposite ways for months at a time: a base rate cut that markets expect to be followed by higher inflation can leave long yields, and so annuity rates, higher rather than lower.
Does waiting a year get a better rate?
It changes two things at once and only one of them is predictable. Being a year older reliably raises the rate, because there are fewer expected years of payments, and that effect is worth a few per cent a year in your sixties. What yields do in the meantime is not predictable at all, and the swing from that has repeatedly been larger than the ageing effect. Set against both is a year of income not received, which for most people is the largest number of the three.
Is this a good time to buy?
That cannot be answered honestly by anyone, and this site does not attempt it. What can be said factually is where rates sit against their own history: they are far above the levels of 2016 to 2021, when long gilt yields were near record lows, and broadly in line with the range since 2023. Whether they go higher or lower from here depends on the bond market. The chart above shows the history so that the current level can be judged in context rather than in isolation.
Information, not advice, and estimates rather than offers. The full method, its accuracy and every data source are set out on how annuity rates are worked out. To see what a particular pot and set of options would produce, use the annuity estimator; to work backwards from an income you want, use how much pension pot you need.