After a period of calm, annuity rates are on the rise again.
A 65-year-old can now get more than £7,000 a year from a £100,000 pension (single life, level income, five-year guarantee).
The last time rates were this high was back in December 2022. They’re still some way off the peaks we saw in the weeks following last year’s mini-budget, when the same person could’ve got an income of £7,586 a year. However, if we compare them to where they were two years ago (£4,979), people are certainly getting far more for their money than they once did.
Remember, annuity quotes are only guaranteed for a limited time and will vary depending on individual circumstances.
Why have annuities risen and where could they go next?
Annuity rates are affected by, among other things, the yields on long-term government bonds (gilts) as well as interest rates.
Gilt yields have risen, partly due to the series of interest rate increases we’ve seen over the last year or two and this has fed through into higher annuity incomes.
With inflation proving a tricky beast to tame, we could see more interest rate rises on the horizon. That means there’s a chance we could see further income increases in the months to come.
Time to consider buying an annuity?
For those in need of some level of guaranteed income in retirement, annuities should always be a consideration. While they’ve offered less value for money in the past, their newly improved fortunes could mean now’s the time to consider them as part of your retirement planning.
One key challenge facing annuities is their perceived inflexibility – once you’ve bought an annuity, it can’t be unwound. However, you don’t have to use your whole pension at once.
If you’re concerned about locking into an annuity today and potentially missing out on increased income in future, you could consider annuitising your pension in tranches. This lets you build a guaranteed income as your needs increase, while leaving the rest invested where it can hopefully grow further.
What’s the cost of delaying buying an annuity?
You also tend to get a higher starting income from an annuity as you get older. A 70-year-old with £100,000 can currently get up to £7,838 a year compared to £7,017 for a 65-year-old.
As you get older, you could also develop a condition that qualifies you for an enhanced annuity, which will give your income a further boost. Enhanced annuities offer you higher levels of income based on your health. Factors like whether you smoke, how much you drink or whether you have conditions like diabetes are all considered. It’s important to include health and lifestyle details when getting a quote.
Shopping around can help you get the best deal. If you’re 55 or over, you can compare quotes from all UK annuity providers on the open market with our online tool. The options you choose can impact the annuity income you get. Consider your options carefully as once your annuity is set up it can’t be changed.
Editor's choice: our weekly email
Sign up to receive the week’s top investment stories from Hargreaves Lansdown
Please correct the following errors before you continue:
Hargreaves Lansdown PLC group companies will usually send you further information by post and/or email about our products and services. If you would prefer not to receive this, please do let us know. We will not sell or trade your personal data.