Rising rates increase the popularity of annuities for retirees

Annual income levels from annuities have climbed by hundreds of pounds since the start of last year. This means that annuities are becoming increasingly popular for retirees looking to maximise their retirement finances and enjoy the peace of mind that comes with a guaranteed income.

So how much have annuity rates increased by? In January 2022, the average annual annuity income was £2,292 – based on a single life and purchased for £50,000 (according to Moneyfacts). Rates rose in October to £3,389 and currently stand at £3,190. That’s a rise of almost 40% between January and December 2022.

What does this mean for pension income?

As an example, a 61‑year‑old male with a pension fund of £100,00 would have been offered a rate of 4.42% in January 2022. By October 2022, this rate had risen to 6.53% – a 48% increase from January ‑ and that would give him an extra £1,582 income every year.

At Age Partnership, we talk to all of our clients about fixed and lifetime annuities. The trend towards taking a guaranteed income has increased since June ‑ backed up by Moneyfacts’ latest figures ‑ and we’ve seen a rise in the proportion of retirees taking lifetime annuities over drawdown pensions. In fact, for the first time in many years, annuities are now a more popular option:

  • In 2021, 72% of our customers took a drawdown pension, falling to just 39% this year.
  • In 2022, 43% of our customers have taken a lifetime annuity, rising from 20% in 2021.

Is it time for you to consider an annuity?

Darren Dicks, director of partnerships and wealth management here at Age Partnership, explains; “With everything in the UK feeling very volatile at the moment, it’s no wonder that retirees are taking advantage of the 10‑year‑high annuity rates and the guarantee of a fixed income for life.

“I am concerned that there could be people out there missing out on getting the highest guaranteed income possible, either because their adviser does not consider annuities or they remain with their existing pension provider and do not shop around for best annuity rate in the entire market.”

There are a couple of reasons why your Independent Financial Adviser (IFA) hasn’t mentioned annuities to you. Firstly, there has been a stigma attached to annuities since 2015, when retirees were given more flexibility over how they spend or invest their pension. Secondly, IFAs receive a regular fee from drawdown pensions and may be reluctant to lose this source of income.

Ask for a quote on an annuity from your IFA

If you’re at the start of your retirement planning journey, or approaching an annual review of your drawdown pension, it’s a good time to ask your IFA about annuities. This should include a full review of medical history as illnesses can increase your annuity rate.

Darren Dicks concludes, “Make sure that your adviser is looking at all your options. The economy has changed so much in the last few months, an annuity may not have been suitable for you at the start of the year, but it could now be the best solution. I would also recommend that you shop around, as you don’t have to take an annuity from your current pension provider.”

*Stats based on pension advice customers