Annuity rates have soared into 2025, driven by rising gilt yields, up from 4.23 per cent to 5.179 per cent, and slower interest rate cut expectations, offering retirees stronger, long-term returns, with some gaining £8,200 more over 20 years, according to Canada Life.
Annuity rates were predicted to decline at the beginning of 2024, but rising 15-year gilt yields, which increased from 4.23 per cent to 5.179 per cent in January 2025, have reversed that trend. Additionally, markets have lowered their expectations for quick interest rate decreases, indicating that annuity rates might hold up well in the long run.
Annuity rates are linked to government gilt returns, so even slight increases can have a big impact on returns. For example, a healthy 65-year-old purchasing a Canada Life lifetime annuity with £100,000 in early 2024 received £6,400 annually. By 2025, higher rates added £8,200 in income over 20 years.
Annuities continue to be a strong choice for retirees in 2025 because they offer stability and attractive returns.
Canada Life retirement income director Nick Flynn says: “Additional government spending, global uncertainty and higher taxes are all contributing to the recent increase in the cost of government borrowing. Whilst there are no cast iron guarantees, if this trend continues, then it’s a strong possibility that annuity rates will be maintained or even increase in 2025.
“Annuities offer individuals security and a guaranteed income for life. However, it’s important to seek the advice of an annuity specialist or regulated financial adviser who will be able to help you find the best annuity product for you, with potentially wider benefits for your spouse or loved ones included too. Either way, be sure to shop around for the best option as opposed to accepting your existing insurer’s offer as the decision to purchase an annuity is irreversible.”