Pension rates surge to 14-year high

Soaring annuity rates mean retirees can make their money back seven years earlier.

Annuity rates have now hit a 14-year high, having shot up by 52pc in the last nine months, according to provider Canada Life.

It means the point at which a retiree would receive their original pension pot back through income has dropped from 22 to 15 years.

Nick Flynn, of Canada Life, said rates had not been this high since before the banking crisis of 2008.

He said: “In the current economic climate, where else could you receive nigh on 7pc risk-free income in retirement?

“That is how strong annuity rates are right now which is why they are worth more than just a second glance.”

The insurance company said a benchmark annuity of £100,000 at age 65 would now pay a guaranteed income of £6,773, up £2,352 from the start of 2022.

Inflation-linked annuity rates have also improved by 71pc, Canada Life added, meaning a benchmark £100,00 annuity linked to the retail price index will now pay £3,896, up £1,701 since the start of the year.

The high rates now mean annuities would now give drawdown pensions “a good run for their money”, Mr Flynn said.

Steven Cameron, of pension provider Aegon, said a spike in gilt yields had pushed up annuity rates.

He said: “Annuities have been perceived as not offering good value because it takes so long to get your original investment back.”

However, pensioners hedging their bets on annuities should be cautious, Mr Cameron warned, as their value is linked to gilt yields.

“If gilt yields fell again, annuity rates would also fall,” he said. “Gilt yields were very low for many years but who knows what they're going to do in the future?”