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Annuity rates have hit a 14-year high, according to research from Canada Life.
“It’s has been a record-breaking year for annuity rates, with incomes at a level we haven’t seen for over a decade,” said Nick Flynn, Retirement Income Director at Canada Life.
In fact, over the past nine months annuity rates have increased by 52%.
This is reflected in the benchmark annuity of £100,000 for someone aged 65. Today this individual would be paid a guaranteed income of £6,873 a year while in January this figure was £4,521.
Inflation based annuity pay outs have also increased. At the beginning of the year a benchmark £100,000 annuity linked to RPI would pay a starting income of £2,195. Today the pay out would be £3,896.
The rise in rates means the break-even point for annuity holders, which is the point where someone would receive the value of their pension back through their annuity income, has reduced by seven years over the last nine months. The average break-even point now sits at 15 years.
Annuity providers typically factor in the yields on long-term Government bonds, or gilts, when determining your annuity rate.
This is because many annuity providers will channel the pension money you provide into this type of investment to earn a return.
Generally, yields on Government bonds move in tandem with the Bank of England (BoE) base rate.
Currently, the BoE base rate is at an almost 14 year high, which is partially why annuity rates have also risen this year.
Flynn encouraged pensioners to not consider annuities in isolation, but instead alongside drawdown options.
“Phasing annuity purchases throughout retirement can not only de-risk your retirement journey, but you can also benefit from better annuity rates as you get older,” he said.
However, before making a decision, Moneyfacts encourages pensioners to seek the advice of an independent financial adviser.
Our preferred financial advisers at Kellands Hale are offering those with £100,000 or more in savings a free one hour consultation. To book your appointment today visit their website here.
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