- Low rates have resulted in many investors not buying annuities with their retirement funds
- Rising annuity rates and deteriorating stock markets this year mean that annuities are now relatively more attractive
- Annuities can provide a useful source of guaranteed income
Has the Bank of England’s steady march of interest rate hikes this year provided a new lease of life for annuities, the Cinderellas of the pension freedoms age? As of this July, it was possible for a 65-year-old with a £100,000 pension pot to buy a level income for life worth over £6,000 a year; those annuity rates are likely to rise further if interest rates continue to increase in the coming months.
This uptick has already taken annuity rates to their highest level since 2014, before the introduction of pension freedoms in April 2015. Prior to that date, most people with defined contribution pensions were required to buy an annuity with their pension pot when they retired. But the changes introduced by then chancellor George Osborne hugely broadened the options at retirement, and retirees embraced their newfound freedoms enthusiastically.