Annuity rates jump to highest level since 2009

Annuity rates have hit their highest level since 2009 in a boost for people looking for a fixed income in retirement.

When people retire, they can choose to buy an annuity which gives them a guaranteed level of income, often for the rest of their life.

Annuities have previously declined in popularity amid disappointing rates and the pension freedoms giving people more choice over what to do with their pension pot.

But annuity rates have recently been on the rise as rising gilt yields have boosted the rates on offer.

Hargreaves Lansdown said it has not seen rates this high since March 2009.

It said someone aged 65 with a £100,000 pension could now potentially get an annuity income of £7,191 a year – up from £4,989 in October last year.

Hargreaves Lansdown said it has provided nearly 18,000 annuity quotes in the past three months – up by 70% compared with a year earlier.

Helen Morrissey, a senior pensions and retirement analyst at Hargreaves Lansdown said that in recent years annuities “become ‘also-rans’ of the retirement income market, but these rises should put them in contention again”.

She added: “The scale and speed of annuity rate rises could offer food for thought for anyone who ruled out an annuity in recent years because of the level of income on offer.”

Ms Morrissey added: “Some retirees are dissuaded because once you’ve bought an annuity the rate is locked in forever, so those sitting on lower rates from last year can’t benefit from more recent rises.

“However, it’s always worth bearing in mind that you don’t need to lock an annuity in with your entire pension pot all at once. One sensible approach is to do it with chunks of your pension in stages, securing income to meet your needs as and when it makes sense for you.

“This gives you the opportunity to secure higher rates as you get older and you may also qualify for an enhanced annuity if you develop a medical condition at a later point, boosting your income again.”

Figures released by the Financial Conduct Authority (FCA) last week showed that sales of annuities rose by 13% annually in 2021/22, with 68,514 sales recorded.

Tom Selby, head of retirement policy at AJ Bell, said last week: “All too often retirement is presented as an ‘either/or’ choice between annuities and drawdown. In reality, the right option will generally be a combination of both.

“For example, you could use an annuity to cover your fixed costs in retirement while retaining flexibility and the opportunity for investment growth with the rest.”

Standard Life also said last week that it is seeing a renewed interest in annuities.