Annuity rates increased by 20 per cent in the 12 months to June 2023, adding over £25,000 to lifetime income, Standard Life has found.
Standard Life's annuity rate tracker revealed that rates also increased by 48 per cent since the start of 2022.
The recent findings showed that the increase year-on-year added over £25,000 and £27,900 in retirement income for a 65-year-old man and woman, respectively. This took the total lifetime income for a 65-year-old man from £117,116 to £142,296, and from £130,707 to £158,660 for a woman.
The tracker also showed that annuity rates increased with age, meaning that those who purchase one later in their retirement will benefit from higher rates. At their current rates, there is a 24 per cent difference in rates based on someone who chose to annuitise at 60 compared to those who annuitise at 70.
Despite the rate increase, research by Standard Life found that almost half (49 per cent) of over-50s did not know if a particular annuity rate was good value for money, with over half not knowing if companies offer good or bad rates compared to five to 10 years ago.
Standard Life’s head of annuities - individual retirement, Pete Cowell, stated: “Annuity rates have improved significantly over the last year, meaning pension savers can get much more for their money than before.
"This, coupled with the certainty and security offered by a guaranteed income, makes the value offered by annuities hard to ignore, and especially in the current climate in which every penny counts.
"For those wishing to explore the value of an annuity, there is the possibility of annuitising at different points during retirement, allowing people to benefit from higher rates and greater income.
“We’re entering a new era of retirement income planning, in which we’re moving away from the notion of retirement income being a one and done approach.
“What’s becoming more appealing is the idea of a blended approach, with annuities and drawdown working in combination to meet different needs in retirement. This approach allows a portion of savings left in flexible drawdown and with the potential to grow, and the annuitised portion providing an element of guarantee to cover essential costs in retirement.”
