Annuities

Back in the 2011 Budget, the Government removed the pension rules that used to force pension members to secure an income through an annuity. As a result of this and low interest rates, annuities became a less attractive option for securing retirement income.

One of the impacts of rising interest rates over the last few years which may have gone unnoticed has been the increase in annuity rates. A lifetime annuity pays a guaranteed income for your life in exchange for the funds you have built up in your pension plan. The annuity provider will pay you a regular income taxed in the same way as earnings. The amount of income payable is dependent on your age and health, the size of your pension fund, economic factors, the type of annuity and the options you select. You should also be aware that once you have purchased an annuity you cannot cash it in or make changes to your selected options.

This improvement in annuity rates may have been missed by many as the ability to pass pension funds onto beneficiaries without any IHT has led most people to choose more flexible pension options like flexi-access drawdown.

With the proposed changes to pensions which means that IHT will be imposed from April 2027 coupled with the improvements in annuity rates may mean annuities are staged to make a return.

A comparison with the rates available in July shows rates having gone up quite significantly, despite the Bank base rate falling.

Indicative annuity rate for a 65 year old

If you wish to review annuities, please do speak to your financial planner.