A £100,000 pension pot could now secure a significantly higher income in retirement, with recent market shifts driving up annuity rates.
Experts have explained how much a 65-year-old could expect to receive annually and why shopping around for the best deal has never been more important.
A 65-year-old with a £100,000 pension pot can currently secure an annual income of up to £7,492 in retirement.
Retirees can get this gaurenteed income for life through a single life level annuity with a five-year guarantee, according to latest data from Hargreaves Lansdown’s annuity search engine.
This represents near record-high rates for pension annuities, maintaining levels seen following the mini-Budget.
Using an annuity search engine is crucial for retirees to understand what the market can offer before making their final decision
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Helen Morrissey, head of retirement analysis, Hargreaves Lansdown said: “Annuities are riding high, and not even the prospect of an impending rate cut seems able to burst their bubble.
“The latest data from HL’s annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,492 per year from a single life level annuity with a five-year guarantee.”
Using an annuity search engine is crucial for retirees to understand what the market can offer before making their final decision.
The current annuity rates mark a substantial improvement from previous years, with the £7,492 annual income significantly higher than the £5,052 available just three years ago.
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This revival in annuity values has driven increased market interest, with Financial Conduct Authority retirement income market data showing sales up 38.7 per cent in 2023/24.
Morrissey added: “Different providers offer different rates so if you accept the first one on offer you could miss out on a higher income.”
The uplift reflects the dramatic shift from the historically low interest rates of 2021, when the Bank of England rate stood at just 0.1 per cent.
With the current Bank rate at 4.75 per cent, annuities continue to offer attractive guaranteed income options for those planning their retirement.
A single-life annuity is often chosen for its predictability, but it’s important to know that if one passes away earlier than expected, the remaining value of their annuity is generally not passed on to beneficiaries.
Looking ahead to 2025, experts predict that anticipated interest rate cuts will have a measured impact on annuity incomes.
Morrissey said: “The good news is that even though we expect the Bank of England to cut interest rates in 2025, it’s only expected to be gradual.”
Annuity rates are not expected to decline as sharply as they rose during the interest rate hiking cycle. While market shocks could potentially trigger rapid rate cuts, the current outlook suggests a “soft landing” for annuity incomes.
Annuity rates are not expected to decline as sharply as they rose during the interest rate hiking cycle
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For those considering annuities, Morrissey advises there’s no obligation to convert an entire pension pot at once.
Retirees can opt for a staged approach, securing essential income needs through initial annuitisation while keeping remaining funds in income drawdown.
This strategy allows for potential growth of remaining pension savings, though returns aren’t guaranteed.
Morrissey explained that later annuitisation could benefit from higher rates as age increases. Those with health conditions should explore enhanced annuities, which can offer higher income rates.
She concluded: “It’s well worth including as much information about your health as possible in your application.”
It should be noted that annuity quotes are only guaranteed for a limited time and will vary based on individual circumstances.
