A £100,000 pension pot could now secure a significantly higher income in retirement, with recent market shifts driving up annuity rates.
Experts have explained how much a 65-year-old could expect to receive annually and why shopping around for the best deal has never been more important.
A 65-year-old with a £100,000 pension pot can currently secure an annual income of up to £7,639 in retirement.
This marks the highest level since December 2008, before the introduction of unisex annuity rates, when a man could receive £7,646 per year.
Retirees can get this guaranteed income for life through a single life level annuity with a five-year guarantee, according to latest data from Hargreaves Lansdown's annuity search engine.
Average annuity rates have risen five per cent over the past year
GETTYHelen Morrissey, head of retirement analysis, Hargreaves Lansdown: “Annuity incomes have surged again, delivering their highest incomes in more than 16 years.
"A 65-year-old with a £100,000 pension can currently get up to £7,639 per year from a single life level annuity.
"This is the highest since December 2008 before unisex annuity rates were brought in and a man could get £7,646 pa."
Rising interest rates have fueled the surge, leading to increased interest from retirees looking for a secure income.
With sales reaching £7bn in 2024, industry experts at ABI predict momentum will continue into 2025 as more people weigh their options for guaranteed retirement income.
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Larger pension pots are increasingly being used to purchase annuitiesGETTYMorrissey said: "However, you need to consider your options carefully. Once bought, an annuity cannot be unwound, so if you act in haste you may find you are repenting at leisure if you don’t get the right type of product for your needs."
Top tips from getting the most from an annuity
Shop Around for the Best Deal
Morrissey stresses the importance of comparing providers before accepting an annuity quote. "If you just accept the first offer, you may be missing out on a better rate," she warns. Using an annuity search engine can help find the best deal.
Consider Your Personal Circumstances
While single-life annuities offer higher income, Morrissey warns that "your partner could be left with nothing if you die first." A joint-life annuity ensures continued payments to a spouse, offering greater financial security.
A 65-year-old can now get up to £7,625 annually through a single life level annuity with a five-year guarantee
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Providing details about health conditions, weight, and smoking status can result in a higher annuity rate. Morrissey explained: "The more information you give, the better your chances of securing a higher income for life."
Factor in Inflation Risks
An annuity that grows with inflation provides long-term security, but starts with a lower payout. HL data shows a 65-year-old can get £5,418 per year with a three per cent inflation-linked annuity, compared to £7,639 for a level annuity. "It may take a decade before the inflation-linked annuity catches up," Morrissey cautioned.
Don’t Buy All at Once
Morrissey advises against using your entire pension to purchase an annuity upfront. "You can buy in slices throughout retirement, securing income as your needs change," she explains. This approach also allows retirees to take advantage of higher annuity rates as they age or qualify for enhanced annuities due to health conditions.
