Annuity rates have reached a six-month high, and there may be further increases to come that boost retirement income.

An annuity is essentially a contract with an insurance company. In return for handing over some, or all your pension savings, you’ll be paid a guaranteed income for life, or a fixed term. However, this income usually dies with you, and so can’t be passed onto loved ones.

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Pension advice can help you get the most out of your retirement income, helping you on your way to a secure financial future. If you have more than £75k in pension savings, take the first step by arranging a free, no-obligation initial consultation with an expert from Aviva Financial Advice. Any recommendations advisers make will be for products from Aviva and other carefully selected partners. There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved. Capital at risk.

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Annuity rates are affected by various factors, including the yields on government bonds, known as gilts, and interest rates. As interest rates rise, annuity rates are also expected to increase, pushing up the amount of income received from these products in retirement.

The average income provided by an annuity bought by a 65-year-old with a £100,000 pension currently stands at £7,017 per year, as rising interest rates have led to increasing annuity incomes over the past 18 months. The last time rates were this high was back in December 2022.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “After years of being consigned to the sidelines of retirement planning, annuities are once again taking centre stage and with more interest rate rises on the horizon there’s every chance we could see further income increases in the months to come.”

This is good news for people approaching retirement after annuity rates spent years falling, reaching their lowest point on record in August 2020. Then, annual income stood at just £3,842 for a 65-year old buying an annuity with a £100,000 pension, or around £2,000 less income than they would have received if they’d bought an annuity a decade earlier. Find out more about how annuities work in our article Annuities explained.

Your options at retirement

Since the introduction of pension freedoms in April 2015, you can do as you wish with your defined contribution pension savings. At the time, many experts stated that this would see the demise of annuities, designed to be bought with a pension pot in order to receive an income in retirement. However, they have remained a popular choice, and particularly in uncertain times, with many retirees choosing to buy one with at least some of their pension savings to provide a secure income for life.

You may choose, for example, to buy an annuity for some secure income while keeping the remainder of your pension invested and drawing an income from your pot. Find out more about your options in our article Your pension options at retirement.

Where to seek help

If you are unsure how to manage your pension savings, the Government’s Pension Wise service offers people aged 50 and above with free guidance on their pension choices at retirement.

It’s worth using Pension Wise as a starting point, but if you want professional financial advice tailored to your particular situation, you’ll need to speak to a financial advisor. Find out more in our article How to find the right financial advisor for you.

If you’re considering getting professional financial advice, Aviva is offering Rest Less members a free initial consultation with an expert to chat about your financial situation and goals. There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.