The annuity break-even point has been brought forward by five years after significant improvement in annuity rates, research from Canada Life has revealed.
The research detailed that the improved annuity rates, which are currently at rates "not experienced since the banking crisis of 2008/9", have brought forward the point when those receiving an annuity get their money back on their original investment.
Annuities are firmly back in fashion Nick FlynnThe net result of the annuity rate improvements means the payback period on a benchmark £100,000 annuity today is 14 and a half years for a 65-year-old which generates an income of £6,907.
This represents an improvement on previous years, with the same annuity paying an income of £5,240 five years ago, with a break-even point of 19 years, and paying an income of £5,670 with a pay-back period of 18 years a year ago.
Canada Life retirement income director, Nick Flynn, said: “It’s been a long time coming but annuities are firmly back in fashion, driven by the significant improvement in rates. This is evidenced by the break-even point, the tipping point at which you receive your original investment back through income.
“This has moved forward by nigh on five years, which shows just how much the market has moved in a relatively short space of time."
Flynn also stated that considering retirement options shouldn’t be a "binary decision" between either annuity or drawdown and instead he encouraged consumers to consider blending annuity and drawdown to provide the best of both worlds, a risk-free retirement income and flexibility.
“Working with a regulated financial adviser or consulting an annuity broker will ensure you consider all of your options and keep your retirement plans on track,” he added.
The research detailed that a benchmark annuity for someone aged 65 today, with no pre-existing health or lifestyle conditions, would pay in the region of 6.9 per cent.
Canada Life stated that this annuity rate can “increase significantly” when disclosing common health or lifestyle conditions, such as diabetes, high blood pressure or being a smoker.
tom.dunstan@ft.com
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