Pensioners are set to benefit as annuity rates soar to their highest level since 2008, offering a guaranteed income for life at a level that has not been seen in over a decade.
An annuity is a financial product that provides a guaranteed income for life (or a fixed period) in exchange for a lump sum payment. It’s commonly used by retirees who want financial security and protection from running out of money in old age.
Investment experts at Hargreaves Lansdown revealed that a 65-year-old with a £100,000 pension can now secure up to £7,639 per year from a single-life level annuity with a five-year guarantee. This is the best deal available since December 2008, when one could lock in a similar rate of £7,646 annually.
Annuity rates plummeted after the financial crisis due to low and fell further after the vote. However, the tide has turned, with rising driving a sharp rebound. Annuity incomes hit £7,586 following the 2022 mini-Budget and have now climbed even higher.
The turnaround has sparked renewed interest, with annuity sales soaring to £7 billion in 2024, according to the Association of British Insurers (ABI).
An annuity is a financial product that provides a guaranteed income for life (Image: Getty)
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Annuity incomes have surged again, delivering their highest levels in more than 16 years.
“It’s a reversal of fortune for a market many thought was all but dead. Rising have seen incomes climb in recent years, and people’s interest has risen along with them. The ABI recently hailed 2024 as a bumper year for annuities, with sales of £7 billion.
“This momentum will continue into 2025 as people weigh their options for securing a guaranteed retirement income.”
However, pensioners are being urged to tread carefully. Once an annuity is purchased, it cannot be undone, meaning a hasty decision could leave retirees regretting their choice for years to come.
Morrissey warned: “You need to consider your options carefully. If you act in haste, you may find yourself repenting at leisure if you don’t get the right type of product for your needs.”
Expert tips to get the best deal
For those considering locking in a guaranteed income, experts at Hargreaves Lansdown offer five essential tips:
* Shop around – Never accept the first quote. Compare different annuities and providers to find the best deal.
* Consider your circumstances – A single-life annuity offers a higher income, but a joint-life annuity ensures your spouse continues receiving money if you pass away first.
* Disclose your health details – Smokers or those with medical conditions could receive a higher payout, so honesty pays off.
* Account for inflation – A level annuity gives you a higher starting income, but inflation-linked annuities rise over time and could be more valuable in the long run.
* Don’t put all your eggs in one basket – You don’t have to commit your entire pension at once. Staggering annuity purchases allows for flexibility and potentially better rates as you age.