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Annuity break-even point falls by 5 years as rates continue to rise

New research1 from Canada Life reveals that the significant improvement in annuity rates experienced over the past 18-months has bought forward the break-even point to get your money back on your original investment by five years.

The net result of the annuity rate improvements means the payback period on a benchmark £100,000 annuity today is 14 ½ years, for a 65-year-old which generates an income of £6,907 a year. This compares to the same annuity paying an income of £5,240 five years ago, with a break-even point of 19 years, and the same annuity paying an income of £5,670 a year ago, with a pay-back period of 18 years.

Today, a benchmark annuity for someone aged 65, with no pre-existing health or lifestyle conditions, would pay in the region of 6.9%1. This annuity rate can increase significantly when disclosing common health or lifestyle conditions, such as diabetes, high blood pressure or being a smoker. Age can also have a big influence on the annuity rate offered.

Nick Flynn, retirement income director at Canada Life comments on the research:

“It’s been a long time coming but annuities are firmly back in fashion, driven by the significant improvement in rates. This is evidenced by the break-even point, the tipping point at which you receive your original investment back through income. This has moved forward by nigh on five years, which shows just how much the market has moved in a relatively short space of time.

“Annuity rates are currently at levels not experienced since the banking crisis of 2008/9, which shows just how far we’ve come. It’s difficult to predict where annuity rates will go, but markets have already priced in interest rate movements, while yields on gilts have stabilised.

“Considering your retirement choices shouldn’t be a binary decision between annuity and drawdown. Rather than adopting an either-or approach, you can consider blending annuity and drawdown to provide the best of both worlds, a risk-free retirement income and flexibility. Annuities can also be bought in tranches as you move through retirement, securing a better rate as you age.

“Working with a regulated financial adviser or consulting an annuity broker will ensure you consider all of your options and keep your retirement plans on track.”

How lifetime annuity rates have changed over time

How lifetime annuity rates have changed over time


Source: Canada Life annuity rates over time, as at 01/06/20232

ENDS

Enquiries:

Press enquiries should be directed to:

Elle McAtamney at Canada Life, elle.mcatamney@canadalife.co.uk

Notes to editors:

  1. Canada Life benchmark annuity rates over time, £100,000 purchase price, 10-year guarantee, no health or lifestyle factors. 15-year gilt yields sourced from ft.com.

About Canada Life:

Canada Life is part of a group of companies controlled by Great-West Lifeco Inc., a diversified financial services holding company headquartered in Winnipeg, Canada. Through its subsidiary companies, Lifeco has operations in Canada, the United States, and Europe. Great-West Lifeco and its insurance subsidiaries have received strong ratings from major rating agencies.  Great-West Lifeco has over 38 million customers worldwide and £1.532trillion assets under administration (as at 31 December 2022).

Canada Life Limited began operations in the United Kingdom in 1903 and looks after the retirement, investment and protection needs of individuals and companies alike. As well as providing stability and security through its individual contracts, Canada Life Limited has grown to become the leading provider of competitively priced group insurance solutions. Canada Life acquired Retirement Advantage on 3rd January 2018 for an undisclosed sum. The acquisition added over 30,000 retirement income and equity release customers and more than £2 billion of assets under management including a £1.5 billion block of in-force annuities to Canada Life.

Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority. Canada Life International Assurance Limited and Canada Life International Assurance (Ireland) DAC are authorised and regulated by the Central Bank of Ireland.

www.canadalife.co.uk