Annuity rates reach highest point of the decade

Annuity rates have reached 7.72% for a healthy 65-year-old, marking a significant recovery from their lowest point in July 2020, when rates were just 4.71%, according to the Standard Life Annuity Rates Tracker.

Annuity pricing has even improved significantly since May last year, when rates were approximately 7% - a 10.2% improvement.

A 65-year-old taking out an annuity today could expect to receive an annual income of £7,720, based on a £100,000 pension pot.

 Pete Cowell, head of annuities at Standard Life, part of Phoenix Group, said: “Our latest Annuity Rates Tracker shows annuity rates surged to their highest levels in years, offering retirees one of the strongest opportunities yet for securing a guaranteed income in retirement. This uplift has been driven by higher long-term interest rates.

“While the recent upward trend has been steady, it feels unlikely annuity rates will fall back to historic lows. Interest in annuities is likely to remain strong, particularly given the anticipated changes to [inheritance tax] in 2027, which may prompt more people to consider annuities as part of their retirement planning.”

“For those who want to lock in an income for retirement and ensure essential needs are covered, but still want an element of flexibility, it is helpful to remember that annuities can be used alongside other decumulation strategies.

“One way is by keeping some savings in drawdown or by staggering the purchase of annuities to benefit from higher rates as you age. This offers the best of both worlds: the certainty and security of a guaranteed income, with the flexibility to respond to changing needs throughout retirement.”