Annuity rates have increased around 54% in just two years, in what experts call a “remarkable turn of fortune”.
At the start of 2022 a benchmark annuity with a £100,000 purchase value would have paid an income in the region of £4,540 a year for someone aged 65 with no health or lifestyle conditions to declare, according to Canada Life.
But now the same annuity pays about £7,000 a year, an increase of 54%. This is driven by rising interest rates and the returns available on gilts. See YourMoney.com’s guide on pension annuities for more information.
Canada Life calculated that over the course of a 20-year retirement, the annuity at today’s rates would deliver around £49,200 extra income compared to an annuity sold in January 2022.
‘Annuities back in vogue’
Nick Flynn, retirement income director at Canada Life, said: “Annuities have been on quite a remarkable journey. While many had effectively written off annuities due to the perceived poor value being generated, they are now very much back in vogue due to the rapid change in fortunes. Coupled with relatively benign investment conditions and economic uncertainty, consumers are seeking retirement income security in uncertain times.
“In a perfect storm, annuities are the only safe ship in town which can generate 100% income security, that no matter what happens, your income will continue to be paid. Consumers are seeking a mix and match approach, combining annuities with drawdown, which can often generate a better retirement income. Balancing the need for security and flexibility, and de-risking drawdown investments over time, by banking the annuity rate, can be a smart move.”
Flynn added: “While I can’t predict future annuity rate movements, the immediate future for the market is looking very positive. From longer guarantees, 100% value protection, fixed term products, alongside the better rates, there really is something for everyone.”
