Average annuity rates have hit a 14-year high and is roughly double what it was nine months ago, according to new data from Canada Life. This means the break-even point, the point at which you would receive your original pension back through income, has been reduced by seven years, falling from 22 years to just 15 years.

What are guaranteed annuity rates?

A guaranteed annuity rate (GAR) is the interest rate used to calculate how much income a pension provider will pay you for the rest of your life through your pension scheme, regardless of how long you live.

The GAR is important because it’s used to calculate how much annual income you’ll receive from your annuity, and that income is guaranteed to last for the rest of your life.

How does guaranteed annuity work?

When you retire and start taking your pension, you have a number of options for how to receive that income. One option is an annuity, which pays you a regular income for the rest of your life.

The amount of income you’ll receive from an annuity depends on a number of factors, including your age, gender, health, and the guaranteed annuity rate.

The GAR is used to calculate the starting income you’ll receive from your annuity, and that income is guaranteed to last for the rest of your life.

What are the current guaranteed annuity rates?

A benchmark pension pot of £100,000 at age 65 would now pay a guaranteed annuity of £6873 a year. This compares to £4521 at the start of 2022. Inflation-linked annuity rates have also seen a significant improvement over the last nine months, with the guaranteed annuity rate improving by 77%.

A benchmark £100,000 annuity in your pension fund linked to RPI will now pay a starting pension income of £3896, compared to £2195 at the start of the year.

Who has the best annuity rate now?

Right now (Oct 2022), guaranteed annuity rates are at a 14-year high. So if you choose to buy an annuity with your pension pot, now is a good time to shop around.

To get the best rate on a guaranteed lifetime income, it’s important to compare a range of providers. The difference between the best and worst guaranteed annuity rate can be significant, so it’s worth shopping around to get the best deal.

A higher guaranteed rate

Nick Flynn, retirement income director, Canada Life has commented that “It’s has been a record-breaking year for annuity rates, with incomes at a level we haven’t seen for over a decade. I’d need to look back to before the banking crisis of 2008/9 to see annuity rates at a similar level as today.

“In the current economic climate, where else could you receive nigh on 7% risk-free income at guaranteed rates? That is how strong annuity rates are right now which is why they are worth more than just a second glance.

Is it safe to fix your pension at a particular percentage rate?

As an independent financial advisor, LG Embrey Financial Planning, authorised and regulated by the Financial Conduct Authority under Pi Financial Ltd, has many years of experience helping clients find the right pension provider and taking the stress out of managing retirement annuity contracts.

Steve Embrey, Managing Director at LG Embrey said:

“A GAR purchased through your pension provider could give you a higher annuity income than what’s offered on the open market. You can find out if your scheme offers a guaranteed annuity rate by looking at the information you were given when you joined the scheme. Most of the schemes that offer a guaranteed annuity rate were marketed in the 1980s and 1990s when guaranteed lifetime income was higher. If you’re still unsure, you can also seek further information on this from the pensions advisory service.”

Is a GAR the best option?

In some cases, an enhanced annuity is available if you’re in poor health. Also, pension freedoms have also made it possible to access your pension fund early, so instead of regular income paid to you for life, you can draw out your pension early, even before your selected retirement date.

Nick Flynn of Canada Life said:

“With the right guaranteed annuity rate and value protection options, annuities can now give drawdown a good run for their money through the benefits available. Clients planning their retirements or looking to de-risk their investment portfolios should take another look at choosing a guaranteed annuity.

“Clients should also look at using annuities alongside drawdown, rather than viewing in isolation or having all your eggs in the one basket. 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. With the right value protection, you can also ensure your wealth is protected and can be passed to loved ones.

“Anyone considering their retirement options should consult the expertise of a specialist annuity

broker or the advice of a regulated financial adviser, before making any decisions.”

Help with pensions, benefits and advice on your money

LG Embrey independent financial advisers based in Shrewsbury, Shropshire under pi financial ltd, authorised and regulated by the Financial Conduct Authority. To discuss your retirement plan call 01743 382002 or fill in the contact form below.

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