The income paid by annuities has soared by almost two thirds in the past five years, while rates on Cash ISAs and standard savings accounts are also riding high.
It’s also possible to get as much as 4.5% on cash, experts say, while avoiding the risk of investing in today’s turbulent stock market.
But with interest rate cuts looming within days this window of opportunity may not stay open for long, experts are warning.
Those looking to take advantage may need to act fast.
Annuity rates have soared to the highest level in almost two decades highs, offering a golden opportunity for pensioners looking to lock into a guaranteed lifetime income.
A 65-year-old with a £100,000 pension can now secure up to £7,882 a year from a single-life level annuity with a five-year guarantee, new Hargreaves Lansdown figures show.
That’s a staggering 63% more than just five years ago, when interest rates were near zero and £100,000 bought a meagre £4,835 a year.
Inflation-linked annuities are also delivering solid returns, currently offering starting income of up to £5,786 a year, which will rise by 3% every year.
Such rates may soon be a thing of the past.
These numbers mark a dramatic turnaround for a product that had been viewed as outdated and unattractive, said Helen Morrissey, head of retirement analysis at Hargreaves Lansdown. “2024 was a bumper year for annuity sales and current rates will continue to drive demand.”
Today’s high rates may swiftly decline with the Bank of England (BoE) expected to cut interest rates next Thursday to shield the economy from Donald Trump’s tariff wars.
The BoE’s monetary policy committee (MPC) is expected to cut bank rate from 4.5% to 4.25% at next week’s meeting on Thursday May 8.
The MPC could even go further and cut base rate to just 4%. In Europe, interest rates have already been cut to 2.5%, so further UK cuts are likely.
If the BoE does cut, annuity rates will be squeezed, Morrissey said. “We aren’t expecting annuity incomes to return to the rock-bottom levels seen a few years ago, but some decline is likely.”
She added: “If you’re considering annuitising, now is a good time to explore the market.”
Morrissey urged savers not to accept the first offer they receive, as different providers offer widely varying rates. “Using an annuity search engine and comparing quotes can leave you thousands of pounds better off over retirement.”
You don’t have to commit your entire pension at once but can annuitise in stages. “As you age, rates improve. If you develop a health condition, you could qualify for an enhanced annuity, giving you even more income,” Morrissey said.
Returns on cash savings deposits will also fall if the MPC cuts rates next week, so savers should try to make use of today’s higher rates.
Many are doing just that, stashing record amounts away.
Antonia Medlicott, founder of Investing Insiders, said many top-paying accounts offer variable rates, which can be cut overnight once the BoE moves. “Fixed rate accounts are a safer bet if you want to lock in a great deal now.”
A fixed-rate Cash ISA could shield your money from tax while guaranteeing a decent return.
For retirees and savers seeking protection from today’s stock market volatility, today’s high rates are may be too good to ignore. They may not be this high for much longer.
