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Research from Canada Life reveals that annuity customers will break even seven years sooner when compared with 2021 data.
The investment and retirement services group says that someone buying a £100,000 annuity will generate an income of £7,373 a year at today’s rates.
This means it will take them 14 years to recoup the initial investment.
The same £100,000 annuity in 2021 would have generated an income of just £4,662 a year – and taken 21 years to claw back the original outlay.
With Britons expected to live into their 80s on average, someone buying an annuity at 65 today can look forward to enjoying several extra years of annuity payments after recouping their initial investment.
Nick Flynn, retirement income director at Canada Life, said: ‘Attractive pricing and the certainty of a guaranteed income for life is increasingly valuable as people live longer and face extended retirements, making annuities a strong choice for those seeking financial stability and peace of mind.’
Annuities were previously unloved but have been making a comeback
Annuity rates become more attractive
Annuity rates have been rising in recent years, and they’re remaining at ‘some of their highest in a decade’ because of the current economic environment, according to Nick Flynn of Canada Life.
‘We are currently in a buyer’s market, so prospective retirees should shop around before purchasing an annuity to ensure they secure the best possible rate,’ he said.
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Rachel Springall, finance expert at rates scrutineer Moneyfacts, said that annuity rate rises could continue – especially if the Bank of England decides to hike the base rate.
But whether this happens depends on how hard we’ll be hit by rising inflation, she said – and a hike this month seems ‘incredibly unlikely’ with policymakers preferring a ‘wait and see’ approach due to the conflict in the Middle East.
‘Now is a great time to seek advice to see how an annuity could help fund retirement, such as with a guaranteed regular income,’ added Springall.
The fact that pensions will be subject to inheritance tax from April 2027 could also lead to retirees reconsidering annuities.
Buying an annuity will reduce the value of the estate by the purchase price – and subsequently lower an inheritance tax liability.
Keep in mind that buying an annuity is an irreversible decision, and there are several decisions to make when purchasing one, including whether you’ll add any protections.
Annuities usually disappear on death. Protection helps to ensure that family members can continue to benefit from an annuity, but death benefits like this will also be brought into the scope of inheritance tax from April 2027.
It’s important to consider all your options at retirement and get dedicated financial advice, because the rules are often complex.
You can read our guide on how annuities work to find out more. We cover how to buy one, the protections available, and how to seek advice.