Annuity rates have reached a 16 year high in 2025 after years in the doldrums. As you can see from the graph below, they were quite simply poor value for most of the last decade. They now offer a viable alternative to drawdown for some or all your pension funds. The main benefit being a guaranteed income without any reliance on investment income.

Annuity rates chart, Annuity Income last 17 years

Based on figures for June 2025

Assumed £100,000 fund, aged 65, level and single life (Source: www.sharingpensions.co.uk)

Common Misconceptions

Death often benefits people off. It is correct that it was once the case that the funds were lost on death. However, there are now many options to ensure funds are not lost to your loved ones. A 100% dependents pension can be built in, ensuring the income would continue after the annuitant’s death. Furthermore 100% value protection can be added, which means if both annuitant and dependent were to pass away before the full amount of the original fund value has been paid out in income, the remaining value would be paid out to your estate.

Factors Influencing Annuity Rates

Several key factors have influenced these trends:

• Interest Rates: Annuity providers invest in government bonds; thus, higher interest rates lead to better returns and higher annuity rates.
• Gilt Yields: Annuity rates are closely tied to gilt yields. For example, a 30 basis point rise in 15-year gilt yields can increase annuity rates by approximately 3%.
• Economic Events: Events like the 2008 financial crisis and the 2022 mini-budget have caused significant shifts in annuity rates due to their impact on financial markets.

Grant

Director and Independent Financial Adviser

This article is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.

The value of an annuity depends on several factors including age, health, and options selected such as guarantees or dependants’ benefits.

Annuity rates can change and may be lower or higher in the future depending on market conditions.