- Rates have risen by 35% over the past year.
- Someone aged 65 with a £100,000 pension can now get an annuity income of £6,637 per year (single life, level, five year guarantee).
- Last September you would only receive around £4,900 per year.
- The last time they were this high was March 2010 when a 65-year old male could get £6,678.
- Annuity rates are determined by long-term gilt yields which are affected by many factors – including interest rates.
- Annuity rates had been in decline since the Global Financial Crisis and hit an all-time low in the aftermath of the Brexit vote.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown:
“Annuity rates continue to soar – increasing by 35% this year alone – reaching a level not seen for more than a decade. If we see a further interest rate rise today, then we could see these rates rise still further in the coming weeks.
Annuities once ruled the roost in retirement income but the low rates on offer meant they faced criticism that they offered poor value for money. The introduction of Freedom and Choice, which gave people much more flexibility over how they took their pension, saw their use decline hugely. These rising rates could encourage people who wouldn’t have thought of purchasing an annuity this time last year to give them serious consideration.
Many people will have a need for some level of guaranteed income during retirement and so annuities should always form a part of any retirement income conversation. Once an annuity is bought it cannot be unwound and this can concern would-be annuitants who don’t want to lock into a rate that then subsequently rises. However, you are under no obligation to annuitise your pension in one go. A good approach could be to annuitise in stages, securing income to meet your needs as you need it. This gives you the opportunity to secure higher rates as you age, and you may also qualify for a further boost to your income through an enhanced annuity if you develop a medical condition at a later point. It also gives you the chance to keep the remainder of your pension invested for longer where it can hopefully benefit from investment growth.”