Demand for annuities has risen strongly on the back of higher rates, with a leading provider seeing a 58 per cent increase in quote volumes during 2022.
Higher annuity rates have been driven by higher interest rates and a corresponding increase in gilt yields. Increased demand has also driven competition in this market between providers helping push rates upwards.
Canada Life says its benchmark annuity rate has increased by 44 per cent since January 2022. Annuity rates have fallen back slightly since the October when they reached a 14-year high following the sudden increase in gilt yields following the fallout from Liz Truss’s mini budget.
Canada Life says this increase mean that an annuity, with a 30-year guarantee, would now pay almost £60,000 additional (on an £100,000 initial purchase price) compared to rates at the beginning of the year.
However those buying a level annuity will find that while they receive a higher pension income, when compared to a year ago, this will be eroded in real terms with inflation increasing significantly.
Canada Life retirement income director Nick Flynn says: “Annuities have made quite a comeback this year, with guaranteed lifetime income back in vogue following the strong improvement in rates.
“This has largely been driven by the positive shift in yields available on gilts, while competitors have also vied for market position.
“Annuities can play a vital role in any holistic retirement plan and yet many preconceptions continue to reinforce the misunderstanding around annuities.”
He adds: “For clients seeking income security in retirement, annuities can play a key role in retirement planning. It will always pay to shop around for not only the best rate, but also the right shape and type of annuity. Purchasing an annuity is a significant financial step and it is the role of advisers to help their clients understand the choices available and select the right annuity for a customers’ individual needs.”
