Pension annuities are back in vogue – here’s how to get the best value
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It can provide peace of mind with a guaranteed retirement income, but choose carefully. Annuities aren’t sexy, but they are definitely having a moment. Sales are on the up, and more people look likely to take one out after changes to inheritance tax on pensions announced in October’s budget.
![[Rupert Jones]](https://i.guim.co.uk/img/uploads/2022/08/30/Rupert_Jones.png?width=75&dpr=1&s=none&crop=none)
An annuity is a product that converts an individual’s pension pot into a regular guaranteed income for the rest of their life, or for a fixed term. You pay a life insurance company a lump sum, and in exchange it guarantees you a regular payout. For a long time, annuities were viewed as poor value, and demand plummeted after the “pension freedoms” introduced a decade ago meant people no longer had to take one out. Years of low interest rates, plus increased life expectancy, also meant that annuity rates – the incomes you get from them – tumbled.
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But the higher interest rates of recent years mean that people buying an annuity now get more bang for their buck. When interest rates rise, so do annuity rates. “The stability of a guaranteed income gives retirees peace of mind that their money won’t run out even if they live past 100,” says Lorna Shah at Legal & General, a big annuity provider. “It takes the guesswork out of budgeting and lets people focus on enjoying retirement.”.
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