Rising interest rates are changing retirement income perspectives.

Three years ago was another era when it comes to interest rates. The Bank of England’s Bank Rate was just 0.1% in December 2020 when a government bond maturing in 2035 delivered a gilt-edged annual return of less than 0.4%. Today’s 15-year gilt offers around 5%.

While the change in bank rate received plenty of media coverage, the move in long-term government bond yields has attracted much less attention. Those higher bond yields have pushed up annuity rates significantly across the board. For example, in December 2020, a typical non-smoking 65-year-old (man or woman) could have secured a 4.8% guaranteed income for life by purchasing an annuity. In October 2023, the equivalent 65-year-old buying an annuity would receive a rate of around 7.5%.

Choosing the right option

If you are about to start taking an income from your pension fund or are considering a move away from income withdrawals, look carefully at what today’s annuity market can offer you. Annuity tables are at best only a very broad guide for a variety of reasons:

• Annuity rates are now close to being individually calculated. Where you live, whether you smoke, how much you drink, any medical conditions you have and your relationship status are all factors that can determine your personal annuity rate.
• Annuities can be set up as level or increasing, either at a pre-determined rate or in line with inflation.
• Joint life annuities are an option, meaning that a guaranteed income is paid for both your and your partner’s lifetimes, or the second person could be a dependent child.

To learn more about all your annuity choices and the latest rates, get in touch.