Annuity rates are rising, and they could provide retirees with a way to create a secure income during times of volatility and high inflation. Read on to find out if an annuity is something you should consider.

An annuity is an insurance product you purchase with a lump sum that will then deliver a regular income. At retirement, you can use some or all of your pension savings to purchase an annuity that will then deliver an income for the rest of your life.

You can choose an annuity that is linked to inflation or would provide your partner with an income if you passed away.



In the past, annuities were a common way to create a retirement income. However, since the government introduced Pension Freedoms in 2015, they’ve become less popular.

Yet, a combination of high inflation, investment market volatility, and rising annuity rates mean they could become an important part of retirement planning again.

Annuity rates increased by 52% in the first 9 months of 2022

When calculating the income an annuity will provide, the rate will have a direct effect.

Let’s say you are offered an annuity rate of 5%. It means that if you purchased an annuity with £100,000, it’d deliver an income of £5,000 a year.

In the last year, annuity rates have soared, and it means your retirement savings could go further. According to Canada Life, annuity rates have hit a 14-year high. They increased by 52% in the first nine months of 2022.

It’s important to note that annuity rates cannot be guaranteed. The rate you’re offered will depend on a range of factors, such as your age and health.

If you want your income to increase each year or for the annuity to provide income for your partner if you pass away, the annuity rate is likely to be lower.

2 reasons why an annuity could make sense during uncertain times

1. An annuity can provide an inflation-linked income

Recent high levels of inflation have placed pressure on some retirees. Those that hadn’t considered the rising cost of living may now find that their income doesn’t stretch as far. Even when inflation is low – the Bank of England’s target is 2% a year – inflation over a retirement adds up.

So, an income that was comfortable when you first retire may not be enough in your later years.

While not all annuities are linked to inflation, those that are can be valuable by helping you to maintain your spending power. During uncertain times, this could provide peace of mind.

2. Your savings won’t be exposed to market volatility

A common alternative to an annuity is flexi-access drawdown. With this option, your savings will usually remain invested, and you can take an income to suit you. This means your savings remain exposed to investment volatility.

While over the long term, this can mean your savings could grow, it can also mean the value of your savings may fall. During periods of volatility, retirees may have to reduce their income to avoid depleting their assets faster than they had planned.

An annuity means you don’t need to worry about investment volatility or manage investments during retirement.

3 reasons why an annuity may not be right for you

1. An annuity is less flexible than other options

When you purchase an annuity, it will deliver an income for the rest of your life. This can be valuable, but it’s not flexible. Other options mean you can take a higher or lower income to suit your lifestyle.

2. You will need to pay fees when choosing an annuity

When you purchase an annuity, there are likely to be fees involved. This could reduce your income so it’s important to be aware of them and shop around for a deal that suits you. There may be a fee when you first purchase an annuity and an annual cost to factor in.

3. There will be no chance of investment growth

One of the reasons that some retirees choose flexi-access drawdown when accessing their pension is that the savings will usually remain invested until they are withdrawn. As a result, savings could grow over the long term. When you purchase an annuity, there is no opportunity for your retirement savings to grow further through investing.

Contact us to talk about your retirement options

The good news is there are several options when creating a retirement income, and you don’t need to choose just one. If it’s right for you, you may choose to purchase an annuity with a proportion of your pension savings to create a reliable base income. You could then flexibly access the rest when you need to.

To talk about your retirement savings and how you could turn them into an income, including the pros and cons of annuities, please contact us. We’re here to help you understand your options and how they could support your lifestyle goals.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.