Annuity rates have increased by around 54 per cent in just two years, according to data by Canada Life.
Back 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.
However, that same annuity two years later would pay around £7,000 a year, an increase of 54 per cent, driven by rising interest rates and the returns available on gilts.
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.
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.”
The analysis is based on Canada Life benchmark annuity rates over time, a £100,000 purchase price and 10-year guarantee with no health or lifestyle factors.
The firm uses 15-year gilt yields sourced from the Financial Times.
Flynn said in a perfect storm, annuities are the only safe ship in town which can generate 100 per cent income security.
He explained that 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.
“While I can’t predict future annuity rate movements, the immediate future for the market is looking very positive.
“From longer guarantees, 100 per cent value protection, fixed term products, alongside the better rates, there really is something for everyone.”
Today, a benchmark annuity for someone aged 65, with no pre-existing health or lifestyle conditions, would pay in the region of 7 per cent.
This annuity rate can increase significantly when disclosing common health or lifestyle conditions, such as diabetes, high blood pressure or being a smoker.
Age can also have a big influence on the annuity rate offered.
sonia.rach@ft.com
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