Retirees can now secure significantly higher guaranteed incomes from their £100,000 pension pots, as ongoing turbulence in the bond market is pushing up annuity rates.
UK Government bond yields have reached their highest levels since 1998, which has caused a dramatic rise in guaranteed pension income.
A 65-year-old can now get up to £7,425 annually through a single life level annuity with a five-year guarantee.
This is a significant rise from £7,235 just a week ago, as continued instability in the bond market drives annuity rates up.
UK Government 30-year bond yields have risen above five per cent, reaching their highest level since 1998, due to a global sell-off of Government bonds.
The UK is facing extra pressure as international investors worry about growing debt, slow economic growth, and ongoing inflation.
A 65-year-old can now get up to £7,425 annually through a single life level annuity with a five-year guarantee
GETTYThe situation worsened after Rachel Reeves' budget in November, which promised higher taxes and more spending.
With inflation at 2.6 per cent, higher than the Government’s two per cent target, expectations for interest rate cuts by the Bank of England have dropped.
As a result, the Government must offer higher yields to attract investors who may find better returns elsewhere.
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown said: “The turmoil in the bond markets has caused annuity incomes to soar, giving an extra boost to a market that has already enjoyed a stellar year."
The current rates represent a dramatic 48 per cent increase from three years ago, when a £100,000 pension pot would have yielded just £5,003 annually.
She added: "We could see further income rises in the weeks to follow and this could push incomes up to the highs we saw in the aftermath of the mini-Budget.
"Annuities continue to provide great value, and we can expect to see interest in them continue to increase."
The rise in gilt yields presents serious challenges for the Government's borrowing costs, possibly jeopardising Chancellor Rachel Reeves' financial plans.
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In her November budget, Reeves set aside £9.9 billion to avoid overspending on borrowing. However, recent market changes may have reduced this cushion to as little as £1 billion, according to Capital Economics.
The Office for Budget Responsibility’s updated forecasts in March will be key to determining if Reeves can stick to her fiscal rules.
The pressure on Government finances is growing, as higher gilt yields mean the Treasury must pay more to borrow money.
Morrisey advises caution when considering annuity purchases, despite the attractive rates.
She said: "Once bought, an annuity cannot be unwound and different providers offer different rates. If you take the first quote offered without checking the rest of the market, you may find you've made a costly mistake."
She recommends using an annuity search engine to compare market rates before making decisions.
Retirees don't need to convert all their pensions to annuities at once, they "can take a flexible approach and annuitise in stages throughout your retirement as your needs evolve."
This allows remaining pension funds to stay invested while potentially benefiting from higher rates later.
