Britain’s retirees are being urged to act fast as soaring annuity rates could mean the difference between financial security and struggling in later life.
Sales of annuities, which offer people to use their pension pots to buy an income for life, have skyrocketed by 24% in the last year.
As a result, they have hit a 10-year high with 89,600 pensioners locking in deals worth £7 billion in total, according to the Association of British Insurers (ABI).
With higher interest rates driving up the size of the annual income that can be purchased from finance giants, pensioners are being warned they could be thousands of pounds out of pocket if they don’t shop around for the best annuity rates.
Currently, a healthy 65-year-old with £100,000 could secure an annual income of £7,550 – but fail to compare rates, and you could lose out on thousands over retirement.
Shop around or lose out
A staggering seven in ten retirees chose an annuity provider different from where their pension was held – proving that failing to look elsewhere could mean missing out on better deals.
Helen Morrissey, retirement expert at Hargreaves Lansdown, said: “Annuity sales have taken off as retirees flock back to secure guaranteed income for life. With interest rates soaring, many are realising they can lock in much better deals now than in previous years.”
But she warned: “Once you buy an annuity, you’re locked in for life – so choosing the right one is vital.”
Don’t leave your spouse penniless
One of the biggest mistakes pensioners make is opting for a single life annuity – which gives a higher income but leaves their partner with nothing when they die.
ABI data reveals an increase in joint life annuity sales, a positive sign that retirees are considering their partners’ financial futures.
Morrissey said:”Many people go for the biggest income today without realising the risk they leave behind for their spouse. Joint annuities and inflation-linked options are rising, which is a relief given the cost of living crisis.”
£500,000 pension pots being locked into annuities
Nick Flynn of Canada Life warns that more retirees are now investing large pension pots of over £500,000 into annuities as they chase guaranteed income in later years. In theory using £500,000 to buy an annuity would provide an income approaching £40,000 a year before tax.
With pensions set to fall under inheritance tax from 2027, experts believe many are rushing to secure their financial future before tax changes bite.
What you need to know before buying an annuity
* Bigger payout if you wait – You could get an ‘enhanced’ rate if you buy later in life or have medical conditions.
* No way out – Once you buy, you’re locked in. Choose wisely!
* So-called Level annuities pay more now but risk future hardship – Inflation is eroding spending power.
* A Joint life annuity provides security for your spouse – Without it, they could be left with nothing.
* Care cost protection – Some annuities for care needs are tax-free if paid directly to care providers.
* Compare rates before you commit – Use free government-backed tools to find the best deal.
