Interest rate cut expected next month – time to lock in annuity rates?

For years, annuities have had a reputation for being poor value and inflexible, but they’ve experienced a remarkable comeback. This has been largely driven by rising interest rates.

But after years of riding high, there are signs that rising rates might not be around for much longer – there’s a strong chance we could see the first rate cut in four years next month when the Bank of England meet.

So, is now the right time to secure your annuity income?

This isn’t personal advice. If you're not sure what to do with your pension, you should seek guidance from Pension Wise, the government’s free impartial service to help you understand your retirement options. If you need more help, think about financial advice.

How do interest rates impact annuity rates?

Annuity providers typically buy government bonds to generate returns and match what they pay out. High interest rates help push bond returns higher and that boosts annuity rates up too.

Equally, when interest rates are low, bond returns are typically lower which means annuity rates have also tended to be lower.

The impact of interest rates on annuities

Rising interest rates helped push annuity rates skyward.

In the aftermath of the mini-Budget in 2022, a 65-year-old with a £100,000 pension could get up to £7,586 each year from a single life level annuity with a five-year guarantee.

This is a whopping 52% higher than the £4,979 each year someone in the same position could get back in June 2021.

What’s next for annuity rates in 2024 and beyond?

As interest rates have been held, annuity incomes have settled. This month, a 65-year-old with a £100,000 pension would be able to get up to £7,217 a year from a single life level annuity with a five-year guarantee.

But there rates might not be around for much longer.

As rumours swirl that the Bank of England is looking to cut interest rates in the coming months, annuity rates could start to drift downwards. However, it’s fair to say that any cuts that are a result of declining interest rates will likely be gradual.

Annuities could continue to offer good value for some time yet. But it might be the spur for those who were undecided as to whether to get an annuity to finally take the plunge. Remember, once set up annuities can’t usually be changed, so it’s important to consider your options carefully.

How to get the best annuity rate

Don’t just accept the first annuity quote you find.

Rates vary between providers and your current pension provider might not offer you the most for your money.

It’s always worth shopping around to get the best deal.

If you use our online annuity tool, we’ll shop around for you to try and get you the best rate.

Unlike some insurance products, if you tell them about your health and lifestyle details when you get an annuity quote, you’ll normally get a better deal.

This type of annuity is known as an enhanced annuity. Even confirming minor details like your height and weight could mean you get a higher annuity income.