Annuity rates have increased by 20% in the 12 months to June 2023, adding over £25,000 to lifetime income, Standard Life has found.

The company’s annuity rate tracker has shown that rates have also increased by 48% since the start of 2022.

The recent findings show that the increase year-on-year adds over £25,000 and £27,900 in retirement income for a 65-year old man and woman, respectively. This takes the total lifetime income for a 65-year old man from £117,116 to £142,296, and from £130,707 to £158,660 for a woman.

The tracker has also shown that annuity rates also increase with age, meaning that those who purchase one later in their retirement will benefit from higher rates. At their current rates, there is a 24% difference in rates based on someone who chooses to annuitise at 60 compared to those who annuitise at 70.

Despite the rate increase, research by Standard Life has shown that almost half (49%) of over-50s did not know if a particular annuity rate was good value for money, with over half not knowing if companies offer good or bad rates compared to five to 10 years ago.

Head of annuities, individual retirement at Standard Life, Pete Cowell, said: “Annuity rates have improved significantly over the last year, meaning pension savers can get much more for their money than before. This, coupled with the certainty and security offered by a guaranteed income, makes the value offered by annuities hard to ignore, and especially in the current climate in which every penny counts. For those wishing to explore the value of an annuity, there is the possibility of annuitising at different points during retirement, allowing people to benefit from higher rates and greater income.

“We’re entering a new era of retirement income planning, in which we’re moving away from the notion of retirement income being a one and done approach. When it comes to retirement planning, people need to consider what they expect their retirement to look like, based on their individual circumstances, and work out how best to make the most of their retirement savings.

“What’s becoming more appealing is the idea of a blended approach, with annuities and drawdown working in combination to meet different needs in retirement. This approach allows a portion of savings left in flexible drawdown and with the potential to grow, and the annuitised portion providing an element of guarantee to cover essential costs in retirement.”

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