Recent data from Canada Life shows that annuity rates are at the highest that they have been in sixteen years. With the increase in gilt yields earlier this year, rates have now climbed to a point that has been unmatched since 2009.
Despite this improvement, many consumers remain reluctant to switch providers. Independent research conducted by Canada Life found that one in eight (12%) prospective annuity customers would not consider switching from their existing pension provider to another supplier, even if they could potentially gain additional retirement income. The research also showed that most UK adults aged 55 or over who are planning to buy an annuity directly from their current pension provider, would only consider switching if offered at least £400 in additional annual income. In other words, £400 appears to be the psychological ‘tipping point’ at which retirees are motivated to shop around.
But how achievable is it to reach the ‘tipping point’? A comparison of different providers’ annuity rates suggests that the answer depends heavily on age and policy type. For example, a 60-year-old person with a £100,000 pension pot and no declared health or lifestyle conditions looking to purchase a single life policy would likely fall short of that benchmark – the difference between best and worst rates currently amounts to around £200 a year. Whereas a 65-year-old in the same scenario, could exceed the £400 threshold, potentially securing over £600 in additional annual income by switching from the worst to best available rate.
It’s also important to note that disclosing health and lifestyle factors can enhance the amount of guaranteed income an individual receives, regardless of age. Canada Life case studies show that people who disclose relatively common health conditions such as high BMI, high cholesterol or high blood pressure can benefit from hundreds of pounds of additional annual income. For individuals that disclose multiple conditions that qualify for an enhancement, the amount could be even higher, equating to many thousands more over a 10 or 20-year period.
Nick Flynn, Retirement Income Director at Canada Life said:
“Annuities offer the certainty of a guaranteed income for life, increasingly valuable as people are living longer and facing extended retirement years. The good news is that we’re currently in a buyer’s market, with annuity rates at their highest since 2009 – making it an ideal time for prospective retirees to consider their options, potentially securing greater value from their pension savings.
“It’s essential to shop around before purchasing an annuity – whether through independent research, a financial adviser or an annuity broker – to ensure you’re getting the best available rate. Just as important is having an honest conversation with your provider about any health or lifestyle conditions, as disclosing even relatively common ones like high blood pressure can increase the level of guaranteed income, potentially adding thousands of pounds over the lifetime of the policy.”
