Annuity incomes have been a ray of sunshine for retirees in these turbulent times.
Latest data from HL’s annuity search engine shows that that rates have continued to soar skyward, reaching a decade high.
A 65-year-old with a £100,000 pension can now get up to £7,882 per year from a single life level annuity with a five-year guarantee.
Inflation-linked products have also been on the rise, with one that rises 3% per year currently offering up to £5,786 per year.
These increases are welcome news for anyone in the market for a guaranteed income in retirement.
However, while current rates will continue to fuel interest, there are clouds gathering on the horizon.
Remember, annuity quotes are only guaranteed for a limited time and will vary depending on individual circumstances. Rates can also change regularly and go up or down in future.
This article isn’t advice. The government’s Pension Wise service can help if you’re over 50 and need guidance. You can also get personalised financial advice if you’re not sure what’s right for you.
What could be next for annuity rates in 2025?
The expectation is that the Bank of England will cut the base interest rate in May and could look to slash them further in its bid to shore up growth.
This could put downward pressure on annuity incomes and so we could see them falling back over the coming months.
However, that doesn’t mean you now need to panic buy an annuity.
Interest rates aren’t expected to fall anywhere near as quickly as they were raised. We’re also not expecting to see rates anywhere near as low as we saw in recent years anytime soon.
It means we aren’t expecting annuity incomes to return to the much lower levels they hit a few years back.
Thinking of buying an annuity? – What you need to consider
If you’re thinking of annuitising, it’s important to do your research. Especially as once you buy one, you can’t just undo it.
So, don’t just accept the first quote you’re offered.
Different providers offer different rates and taking the time to look across the market could leave you thousands of pounds better off over the course of your retirement.
It's also important to include as much information about your health and lifestyle as possible as part of your annuity application.
If you suffer from a condition like diabetes or have had a stroke, then you could qualify for an enhanced annuity which will give you an increased income.
Even including data like how much you weigh, whether you drink, or if you’ve ever smoked could mean you get more from an annuity.
You can use an annuity search engine to get a sense of what’s on offer and make sure you get the best type of annuity for your needs.
You also don’t need to annuitise all your pension at once. You can annuitise in stages as you go through retirement.
This means you can annuitise to secure your essential needs and keep the rest of your pot in income drawdown where it has the opportunity to grow – although this isn’t guaranteed.
And as you annuitise more, you have the potential to benefit from higher annuity rates as you get older.