More people looking into annuities as rates rise

Before the pension freedoms in 2015, most people used their defined contribution pension savings to buy an annuity. The reforms brought more choice, allowing savers to withdraw some or all of their pension pot as a cash lump sum, take regular or occasional income payments, or use some or all of it to buy an annuity -- or a combination of these options.

This means that fewer people these days are buying an annuity with their pension savings. But with annuity rates on the rise, more pension savers have been hitting Google to find out more about annuities.

A new analysis by Standard Life reveals that annuity rates have increased by 50% since the start of the year. In January 2022 the annuity rate for a healthy 65-year-old, based on a typical postcode, was 4.66%. This had steadily risen to 7.04% by the second week of October.

There is a strong correlation between rate rises and internet searches for information on annuities, Standard Life found.

Google Trends data, which provides an insight on the relative volume of searches on any term, shows growing interest in annuities with the three highest weeks for search volumes occurring since the end of September when rates crossed 6.44%.

"The rise in annuity rates has clearly not gone unnoticed by those considering their retirement income options," said Claire Altman, managing director for individual retirement solutions at Standard Life. "Rates have been on a steady upward trend since the start of this year and at the levels we're seeing now, we expect growing numbers of people to buy a guarantee on some or all of their retirement income.

"In the current climate, against a backdrop of rising inflation and a cost of living crisis, the benefits and value of a secure income to consumers are very attractive."

Altman added that pension savers who value flexibility when it comes to managing their retirement income can opt to annuitise in stages, leaving a portion of their income in drawdown.

"This ensures people still benefit from the potential of investment growth, but are secure in the knowledge that a portion of their income is guaranteed."

A financial adviser can help you explore the various options and, if you decide to buy an annuity, help you find the right provider. It's important to make sure you're getting a good deal before you commit, or you could potentially lose out on thousands of pounds over the course of your retirement.

Separate research by Just Group reveals that the gap between the highest and lowest annuity rates has widened to a four-year high.

Comparisons show that the worst-paying standard guaranteed income for life plan would generate £3,137 income a year on a £50,000 purchase price for a 65-year-old retiree in good health. The best-paying generated £3,642 or 16% more income. That is £505 a year extra income, or £12,625 over 25 years.

"While it is tempting to take the path of least resistance and to simply sign up to whatever your pension provider is offering, that is likely to turn out to be an expensive mistake," explained Stephen Lowe, group communications director at Just Group.

"Retirement is quite a financially complex time of life, so think about using a professional financial adviser or a specialist annuity broker who can formulate a plan based on your personal circumstances and who can scour the market for the best solutions and deals."