Annuities are becoming increasingly appealing again thanks to the current economic conditions which is making rates skyrocket.
Data from Canada Life shows that the average annuity rates have hit the highest level in 14 years, up 52% since the beginning of the year.
As a result, the break-even point – when a client would receive their original pension back via income – has reduced by seven years from 22.
The insurer explained that now, a benchmark annuity of £100,000 ($113,884, €114,924) at age 65 would pay a guaranteed income of £6,873 a year, compared to £4,521 at the beginning of 2022.
Inflation-linked annuity rates have also seen a staggering improvement over the last nine months, up 77%.
A benchmark £100,000 annuity linked to the Retail Price Index (RPI) will now pay a starting income of £3,896, while it would have paid £2,195 at the start of the year.
‘A good run for their money’
Nick Flynn, retirement income director at Canada Life, said: “It has been a record-breaking year for annuity rates, with incomes at a level we haven’t 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.
“In the current economic climate, where else could you receive nigh on 7% 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.
“With the right guarantees and value protection options, annuities can now give drawdown a good run for their money through the benefits available. 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. 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. With the right value protection, you can also ensure your wealth is protected and can be passed to loved ones.
“Anyone considering their retirement options should consult the expertise of a specialist annuity broker or the advice of a regulated financial adviser, before making any decisions.”