Annuities Are Back: Why More Retirees Are Locking In Guaranteed Income for Life
By Samuel Mather-Holgate
Annuities — once considered unfashionable in the post-pension-freedom era — are firmly back in favour.
According to the BBC’s Money Box programme, annuity sales have surged by 83% since 2020, a remarkable turnaround for a retirement product many had written off. So, what’s driving the revival? And more importantly, should you be considering one?
Let’s unpack what’s going on — and what you need to know before buying an annuity.
Why Annuities Are Making a Comeback
The surge in annuity popularity is being driven by two powerful forces:
1. Rising Gilt Yields
Annuity providers use UK government bonds (gilts) to fund the income they promise. In recent years, gilt yields have risen sharply, thanks to persistent inflation and interest rate hikes.
Higher gilt yields = better annuity rates.
Today, a 65-year-old with a £100,000 pension pot can buy a single-life, level annuity paying over £7,000 a year — significantly more than just a few years ago.
2. Market Anxiety
Many retirees are nervous about market volatility. After two years of unpredictable returns and global economic shocks, the idea of a guaranteed income for life is understandably appealing.
What Is an Annuity? A Quick Refresher
An annuity is a financial product that converts your pension pot into a guaranteed income for life (or for a fixed term). In return for giving up your pension pot (or a portion of it), you receive a regular, predictable income.
Once considered restrictive, modern annuities are more flexible and customisable than many people realise.
The Main Types of Annuity Options Available
If you’re considering an annuity, here’s a breakdown of the key features and choices available:
✅ Level vs. Index-Linked
Level annuity: Pays the same amount each year. Starts higher but loses real value over time due to inflation.
Index-linked annuity: Increases each year (e.g. in line with CPI or at a fixed rate), helping preserve purchasing power.
✅ Single Life vs. Joint Life
Single life: Pays income until you die. Best for those with no dependants.
Joint life: Continues to pay a percentage (often 50%-100%) to your spouse or partner after your death.
✅ Guarantee Periods
Choose to guarantee payments for, say, 5 or 10 years — so if you die early, your annuity continues to your estate or beneficiary for the remainder of the guaranteed term.
✅ Value Protection
This ensures your estate can receive any unused funds (minus tax) if you die before receiving at least the amount you paid for the annuity.
✅ Enhanced (or Impaired Life) Annuities
This is a critical one: you could get more income simply due to your health or lifestyle.
Smokers, people with high blood pressure, diabetes, or even those on certain medications may qualify for enhanced rates. You don’t need to be seriously ill — not being an Olympic athlete is often enough to qualify.
✅ Investment-Linked Annuities
These offer a combination of guaranteed income with exposure to investment growth. Income may vary but offers some upside potential if markets perform well.
Why Seeing an Independent Financial Adviser Matters
Annuity rates vary hugely between providers, and the market isn’t one-size-fits-all. A financial adviser can:
Compare products across the whole market (not just what your pension provider offers)
Assess whether an annuity is right for all or part of your pension
Tailor options to suit your personal circumstances (e.g. adding guarantees, joint life cover)
Check for enhancements you may be eligible for based on health or lifestyle
Balance annuities with other retirement income strategies, such as drawdown or ISAs
And remember: once an annuity is set up, it usually can’t be changed. Getting it right first time is essential.
So, Is an Annuity Right for You?
That depends.
For some, the peace of mind of knowing exactly what you’ll receive — and for how long — is worth its weight in gold. For others, a blend of annuity and flexible drawdown may offer the best of both worlds: certainty and flexibility.
But one thing is clear: annuities are no longer the poor relation of retirement planning. With strong rates, customisable options, and enhanced income available for many, they deserve a second look.
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Whether you’re approaching retirement or just exploring your options, we can help you make the right decision for your circumstances — now and in the years ahead.
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