Between £2,600 and £2,900 could be added to the average income of someone with an annuity, after rates rose to 7.25% in September.
This rise, from 7.11% in June, could see the average 65-year old who bought an annuity at the higher rate expect to receive an income of £7,248, based on a pension of £100,000.
The amount of money available through an annuity, which provides a guaranteed income for life, depends on a person’s age, health, and when they bought the annuity. Rates have been steadily rising this year, and were up 20% in May.
Using average life expectancy figures from the Office for National Statistics, over their lifetime, the total expected income for a woman who bought an annuity at age 65 rose to £161,623 in September, an increase of £2,963 from £158,660 in June.
For a man of the same age, the overall income level rose £2,657 from £142,296 to £144,953, according to figures from Standard Life.
The earlier an annuity is bought, the higher someone’s overall income pot will be. However, those that do buy one later in life are likely to get better rates.
The data shows that the average 70-year old who bought an annuity would’ve received a rate of 7.93% in June and 8.18% in September. This rise of 3.07% could see someone who received the higher rate boosting their income by an extra £243.91 a year.
For the average 70-year old woman, total expected income rose £4,342 after the increase in rates while for the average 70-year old man it was £3,854.
Rates continue well above historic low levels seen previously
Pete Cowell, head of annuities at Standard Life, part of Phoenix Group, said: “While early indications for the final quarter of the year suggest that rates have fallen back a little, what’s important to note is that they continue to remain well above the historic low levels seen previously.
“When considering an annuity purchase, there are a number of factors that may impact the income you receive, such as health conditions or whether you want additional benefits such as value/capital protection so you can leave a lump sum on death to your loved ones.
“It is also worth thinking about the benefits of a ‘mix and match’ style approach, with an annuity being used to cover part of your outgoings, and keeping some income in drawdown to cover everything else. Through this approach, pension savers could be able to benefit from the best of both worlds – achieving security of income and flexibility with your retirement savings.”