Annuity rates increased by 6.5 per cent over the last year, according to latest information from Standard Life.
Its annuity tracker shows a healthy 65-year old can now buy an annual income of income of £6,890 with a £100,000 pension pot — an increase of £440 compared to February 2023.
Over the course of an average retirement Standard Life estimates that this will add £9,424 and £9,740 to the total retirement income received by a 65-year-old man and woman respectively.
This tracker monitors current average annuity rates across the market for those annuitising at ages 60, 65, and 70. It also shows that while there was a small drop in rates towards the end of 2023, following a decrease in gilt yields, annuity rates are again trending upwards, with a percentage increase in rates of around 3 per cent between December 2023 and February 2024 — despite there being no corresponding increase in interest rates over this period.
It points out that rates have increased at all age brackets. As of the end of February 2024, rates for a healthy 60-year-old were 6.26%, compared to 7.71% for a healthy 70-year-old.
Standard LIfe says this results in an annual income of £6,260 for a 60-year-old versus £7,710 a healthy 70-year-old might expect to receive on a £100,000 pension pot — a difference of £1,450.
Standard Life head of annuities Pete Cowell says: “Our latest annuity rate tracker shows rates continued to improve throughout 2023, giving people more for their money than before.
“While movement in rates can be expected, with fluctuations observed during the fourth quarter of 2023, what’s important to note is that we are unlikely to see rates fall to the historic lows seen previously.
“The security and certainty that annuities provide is something we know people prioritise, with nine in 10 saying income certainty in retirement is important to them.
“This increasing desire for a guaranteed income in retirement was also demonstrated in the ABI’s latest annuity data which demonstrated that the annuity market increased by 46 per cent in 2023.”
He pointed out that many people are now opting for a ‘blended approach’ with an annuity playing a valuable role as part of a wider toolkit of solutions. “Rather than asking whether they should annuitise or not, people may be better asking how much they should annuitise and when, especially when considering the fact that annuity rates improve with age,” he adds.
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