Annuity rates have risen by almost 10 per cent over the past year, giving a payback period of just 13 years, according to the latest data.
Standard Life’s annuity rates tracker shows that the average annuity rate stood at 7.65 per cent in September — 9.68 percentage higher than the same month the previous year.
This means a 65-year old purchasing an annuity would only need to live to the age of 78 to start receiving more in income than they had originally invested. When annuity rates were at their lower this payback period was almost a decade longer, putting many people off buying annuities with their pension funds.
This rate increase means that a healthy 65-year old man with a £100,000 pension pot would receive an additional £14,000 over their total retirement (assuming average life expectancy), when compared to someone buying an annuity 12 months previously. A woman of the same age, with the same sized pension would receive £15,000 more.
Standard Life head of annuities Pete Cowell says: “Annuity rates remain strong and continue to offer valuable income certainty for retirees, following a slight dip since May.
“At today’s rates, a 65-year-old would need to live to 78 to break even, almost a decade earlier than during the rate lows. In addition, around half of customers could qualify for an enhanced annuity, unlocking even higher income and a shorter payback period.
“Annuities remain a crucial way for retirees to ensure they get what they want from their retirement income, as research from National Annuity Day revealed that just over a third (35 per cent) of UK adults over 50 want a ‘steady and stable’ retirement income, while an additional quarter (24 per cent) want to always be prepared with both a regular income and reserve for bills and costs.
“This demand for income certainty, alongside market conditions — including economic and regulatory factors — will continue to drive demand, especially with the planned IHT changes expected in 2027, which are prompting more people to consider annuities as part of their financial planning.”