Whilst it was generally assumed that annuity rates would fall dramatically in 2024, as interest rates and gilt yields were expected to drop, expectations were defied and it proved to be another highly fruitful year for annuity customers.
January can be a time for planning ahead, and soon-to-be retirees may be wondering whether an annuity is the right option for them in 2025 and provide a good return on investment.
The first full week of 2025 saw a dramatic spike in government borrowing costs, with the 15-year gilt yield standing at 5.179%1, compared 4.23%, on the same date in January 2024. Furthermore, with financial markets reducing their expectations around the number and speed of interest rate cuts in 2025, it is looking increasingly likely that the return of annuities is not just a flash in the pan and is possibly here for the longer term.
Annuity rates are largely linked to the return on government gilts (the return that is provided when effectively lending the government money). Many factors contribute to the monthly income a customer can expect from their annuity, however, gilt yields tend to be a good indicator for the direction of travel for rates. As a rule of thumb, a 30-basis point rise in yields on gilts would increase annuities by around 3%.
Back at the start of 2024, a Canada Life benchmark lifetime annuity with a £100,000 purchase value would have paid an income in the region of £6,400 a year for someone aged 65 with no health or lifestyle conditions to declare. If the same person were to purchase a Canada Life lifetime annuity now, improved rates would mean that they could expect around an additional £8,200 in income over a 20-year period2.
Nick Flynn, Retirement Income Director, Canada Life said: “Additional government spending, global uncertainty and higher taxes are all contributing to the recent increase in the cost of government borrowing. Whilst there are no cast iron guarantees, if this trend continues, then it’s a strong possibility that annuity rates will be maintained or even increase in 2025.
“Annuities offer individuals security and a guaranteed income for life. However, it’s important to seek the advice of an annuity specialist or regulated financial adviser who will be able to help you find the best annuity product for you, with potentially wider benefits for your spouse or loved ones included too. Either way, be sure to shop around for the best option as opposed to accepting your existing insurer’s offer as the decision to purchase an annuity is irreversible.”
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Enquiries:
Press enquiries should be directed to:
Elle McAtamney, Canada Life, +447913 568213, elle.mcatamney@canadalife.co.uk
Notes to editors:
- Rates as of closing on 08.01.2025 and 08.01.2024. Source: https://uk.investing.com/rates-bonds/uk-15-year-bond-yield
- Source: Canada Life annuity rates over time. As of January 2024, a 65-year-old person with no health or lifestyle conditions to declare, at a £100,000 purchase price and 10-year guarantee, would receive an income of £6431 per year. As of January 2025, the same person will receive £6843 per year, equating to approx. an additional £8,241 in income over a 20-year period.
About Canada Life:
Canada Life is part of a group of companies controlled by Great-West Lifeco Inc., a Canadian headquartered, international financial services holding company with interests in life insurance, health insurance, retirement and investment services, asset management and reinsurance businesses. Through its subsidiary companies, Great-West Lifeco operates in Canada, the United States, and Europe. Great-West Lifeco trades on the Toronto Stock Exchange under the ticker symbol GWO and is a member of the Power Corporation group of companies.
Canada Life Limited began operations in the United Kingdom (UK) in 1903 and provides UK individuals and businesses with a range of retirement, investment, insurance and wealth solutions. Canada Life offers individual annuities, pension de-risking solutions, home finance, estate planning and investment options, and workplace protection products.
Canada Life Limited (no.973271) is registered in England and Wales, authorised by the Prudential Regulation Authority, and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Stonehaven UK Limited (no.05487702), trading as Canada Life, is registered in England and Wales and is authorised and regulated by the Financial Conduct Authority. Canada Life International Limited (no.033178C) and CLI Institutional Limited (no.108017C) are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority. Canada Life International Assurance (Ireland) DAC (no. 440141) and Canada Life International Assurance (Ireland) DAC are authorised and regulated by the Central Bank of Ireland.
Canada Life Asset Management is the brand for investment management activities undertaken by Canada Life Asset Management Limited (no.3846821), Canada Life Limited and Canada Life European Real Estate Limited (no.03846823). Canada Life Asset Management Limited is authorised and regulated by the Financial Conduct Authority.
Please note that while Canada Life Limited and Canada Life Asset Management Limited are regulated as stated above, property management and the provision of commercial mortgages are not regulated activities.