Average annuity rates have hit a 14-year high, having increased by 52 per cent in the past nine months, according to data from Canada Life.
This means the break-even point, the point at which an individual would receive their original pension back through income, has reduced by seven years, falling from 22 years to just 15 years.
The firm explained that a benchmark annuity of £100,000 at age 65 would now pay a guaranteed income of £6,873 a year. This compares to £4,521 at the start of 2022.
Inflation-linked annuity rates have also seen an improvement over the past nine months, with rates improving by 77 per cent.
A benchmark £100,000 annuity linked to RPI will now pay a starting income of £3,896, compared to £2,195 at the start of the year.
Nick Flynn, retirement income director at Canada Life, said it has been a “record-breaking year” for annuity rates, with incomes at a level that have not been seen for over a decade.
“I’d need to look back to before the banking crisis of 2008/9 to see annuity rates at a similar level as today,” he said. “In the current economic climate, where else could you receive nigh on 7 per cent risk free income in retirement?
“That is how strong annuity rates are right now which is why they are worth more than just a second glance.”
Source: Canada Life annuity rates as at September 30, 2022. Benchmark annuity rates for £100,000 at age 65. 10-year guarantee, single life, no escalation.
Flynn explained that with the right guarantees and value protection options, annuities can now give drawdown “a good run for their money” through the benefits available.
He said clients planning their retirements or looking to de-risk their investment portfolios should take another look at annuities.
“Clients should also look at using annuities alongside drawdown, rather than viewing in isolation or having all your eggs in the one basket,” he said.
“Phasing annuity purchases throughout retirement can not only de-risk your retirement journey, but you can also benefit from better annuity rates as you get older."
Flynn added: “With the right value protection, you can also ensure your wealth is protected and can be passed to loved ones.”
sonia.rach@ft.com
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