Annuities: rates on guaranteed pension income soar 44% in a year
Mortgage rates are still soaring, stock markets have been tumbling, and high inflation is eating away at people’s savings. It is pretty grim out there but one financial product – which had been pretty much written off by many people – is looking a lot more tempting than it did a year or two ago.
An annuity is a product that turns an individual’s pension savings into an income for life, and there are predictions that many more people will now be looking at using some of their retirement cash to buy one.
New figures out this week showed that annuity rates have leapt by 44% in the space of a year and are now at their highest levels since early 2009.
It means someone aged 65 with a £100,000 pension pot could now get an annuity income of £7,191 a year – up from £4,989 in October last year, according to the investment platform Hargreaves Lansdown.
It has long been the case that one way to use your pension pot is to buy an annuity. This gives you a regular guaranteed retirement income for the rest of your life, or for a fixed term.
However, for a long time annuities were viewed as poor value, and demand for them fell off a cliff after the government introduced a range of “pension freedoms” in 2015 that meant people no longer had to take one out. Low interest rates and increased life expectancy also meant that annuity rates tumbled.
However, the financial and economic backdrop is of course now very different. When interest rates rise, so do annuity rates. They have been turbocharged by soaring long-term gilt yields (the interest rate on UK government bonds).
“The potential income for someone aged 65 with a £100,000 pension has risen by £200 [a year] in the past week alone,” says Helen Morrissey, the senior pensions and retirement
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