Explore the value of a pension annuity

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It can often feel like the retirement landscape is ever-changing. This, coupled with market volatility and the uncertainty which accompanies it, can make retirement planning feel like a minefield for many people. 

But that’s where your expertise can come into its own.  

While changes in the market often causes challenges for clients they also create an opportunity for you to help clients who are keen to receive a guaranteed retirement income for the rest of their lives.  

In recent years, investment market turbulence has helped to make pension annuities a more attractive option, particularly for risk adverse clients – and with annuity rates having increased in the last few years they are now giving people more for their money than they might think.
 

Why it’s time to reconsider pension annuities 

If you have clients who are approaching or currently in retirement, you might find they have pre-conceived ideas about pension annuities that no longer stand. We’ve found one of the key misconceptions around annuities being that they’re expensive and offer poor value for money in the long term. 

It’s understandable that if people don’t expect to live into old age, they may feel that they’ll lose some of their pot if they buy an annuity. And if clients have considered the lives and life expectancy of their parents’ generation when planning for retirement, they may think their prospects will be similar - but that’s not necessarily the case.  

It’s likely that when clients who are now approaching retirement age started to plan for their later life – often around age 36 according to our Retirement Voice research¹ – the outlook for their twilight years was very different. For example, 30 years ago the average life expectancy in the UK was 80 for men, and 83 for women². 

With modern advances in healthcare, and with more people aware of the importance of a healthier lifestyle, life expectancy has grown in the intervening years to 85 for men and 87 for women. What’s more, nowadays there’s a 1 in 4 chance a man will live to 92, and this rises to 94 for a woman.  

With this increasing life expectancy, it’s clear to see why 55% of people are concerned that their pension savings won’t last for their full lifetime¹. So, perhaps it’s a good time to think about making an annuity part of your clients’ retirement plans.
 

The importance of financial advice 

People can often worry they’ll make the wrong decision when it comes to retirement. In fact, in our current Retirement Voice research, 38% of retirees worried if they had made the right decision when accessing their pension savings¹.  

Of course, this makes your role incredibly valuable. 

The importance of having good financial advice to build a balanced and tailored pension plan can’t be understated. When we asked the nation’s retirees if they’d do anything differently given the chance, 41% told us they wished they has sought advice or guidance to plan for their retirement¹.
 

The value of a pension annuity 

Annuity rates have increased by 4% since the beginning of 2024, adding an extra £3,659 to the total lifetime income* expected for a 65-year-old man and £4,059 for a 65-year-old woman, compared to March rates.

Annuity rates have continued to marginally improve since the start of the year, with the average rate for a healthy 60-year-old improving from 6.16% in January to 6.38% in June. Meanwhile, for a healthy 70 year-old, the rate has improved by 7.64% to 7.91% over the last six months. 

These increases mean that annual income has improved by £127 pa for a healthy 60 year-old, £182 pa for a healthy 65 year old and £123 pa for 70 year old.

 

Total lifetime income expected from an annuity 

2024 - Average annuity rates
Age	Average annuity rate (January 2024)	Average annuity rate (March 2024)	Average annuity rate (June 2024)	% change in rates since March 2024	Annual income – June 2024	Annual income difference – March – June 2024
60	6.16%	6.25%	6.38%	2.03%	£6,381	£127
65	6.81%	6.90%	7.08%	2.64%	£7,083	£182
70	7.64%	7.79%	7.91%	1.57%	£7,914	£123

Annual rates and annual income (2023 – 2024) 

Quotes based on a pension pot size of £100,000, with no medical conditions. Additional options added are Level escalation and a 5-year guaranteed payment period. The rates in the table have been based on averages from across the market. 

* Total expected income figures are based on life expectancy statistics from the Office of National Statistics, based on age annuity is first purchased. Total expected income includes annuity income only.

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One of the main advantages of a pension annuity is its reliability – it’s often seen as a stable choice for clients keen to avoid the market risks that can come with relying on pension drawdown alone. Clients can feel safe in the knowledge they’ll have a guaranteed income for the rest of their lives – and this can be key when making plans to cover their essential expenses as they grow older. 

And if clients are worried that they’d be missing out on growth by purchasing an annuity, keep in mind that they can use a portion of their pension pot towards this option, and keep the rest invested. Then depending on their age, health, and attitude to risk, they could purchase another annuity with the rest of their pension pot in the future.

While buying an annuity earlier in retirement will likely result in a higher total income over the course of your client’s life, annuity rates also increase with age. So, clients who decide to purchase one later in their retirement are likely to benefit from higher rates. However, each client is different and the best time to buy an annuity will depend on their individual circumstances.

With this in mind, when managing your client’s retirement income, taking a blended approach to annuities can help to increase value for money.
 

Tailor an annuity to suit clients’ needs 

Your clients' personal choices and circumstances can make a difference to the value they receive from an annuity – not just in terms of payments, but for their long-term peace of mind. 

When they purchase an annuity, clients can choose to add a range of features designed to leave a legacy for their dependants after they’re gone. These options may help to alleviate concerns your clients may have about getting the highest possible income from their annuity. 

For example, at Standard Life, we offer options such as a guaranteed payment period, where a client’s annuity payments can continue to be paid to their estate or beneficiaries for up to 30 years after they die. 

Or clients can arrange to have a portion of their payment paid out to a chosen dependant until they die. Alternatively with Value Protection, they can select to protect a percentage of the initial amount they used to buy their annuity with us, and we’ll pay out this amount to their family as a lump sum – minus any income payments already made – when they die. 

These options come at an additional cost that will reduce income payments – but they give your clients the choice to tailor their annuity so it can provide value where they feel it’s most needed. 
 

Explore annuity rates and trends  

Our latest annuity rates tracker³ can support your client conversations by showing what they could get for their money – it might be more than they expect.  

 

Sources: 1. Standard Life, Retirement Voice research, 2023. 2. Office for National Statistics. 3. Standard Life Annuity Rates Tracker, 2024.