Annuity rates have increased by a record amount with a rise of 54% in the last two years, Canada Life has found.

The financial services firm has highlighted that at the start of 2022, a benchmark annuity with a £100,000 purchase value would have paid an income in the region of £4,540 a year for someone aged 65 with no health or lifestyle conditions to declare.

Two years on, the same annuity would pay around £7,000 a year, an increase of 54%.

Canada Life suggested this is a result of rising interest rates and the returns available on gilts.

Over the course of a 20-year retirement, Canada Life said that the annuity at today’s rates would deliver around £49,200 extra income compared to an annuity sold in January 2022.

Retirement income director at Canada Life, Nick Flynn, said: "Annuities have been on quite a remarkable journey. While many had effectively written off annuities due to the perceived poor value being generated, they are now very much back in vogue due to the rapid change in fortunes. Coupled with relatively benign investment conditions and economic uncertainty, consumers are seeking retirement income security in uncertain times.

"In a perfect storm, annuities are the only safe ship in town which can generate 100% income security, that no matter what happens, your income will continue to be paid. Consumers are seeking a mix and match approach, combining annuities with drawdown, which can often generate a better retirement income. Balancing the need for security and flexibility, and de-risking drawdown investments over time, by banking the annuity rate, can be a smart move."

Through its research, Canada Life revealed that the benchmark annuity today for someone aged 65 with no pre-existing health or lifestyle conditions, would pay in the region of 7%.

This annuity rate can increase significantly when disclosing common health or lifestyle conditions, such as diabetes, high blood pressure or being a smoker. Age can also have a big influence on the annuity rate offered.

Flynn added: "While I can’t predict future annuity rate movements, the immediate future for the market is looking very positive. From longer guarantees, 100% value protection, fixed term products, alongside the better rates, there really is something for everyone.

"An independent annuity broker or regulated financial adviser will your best port of call to ensure you get the right solution for your individual circumstances."

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