Annuity rates have hit the highest level seen since 2009 having risen by 44% in a year.
Someone aged 65 with a £100,000 pension could now get an annuity income of £7,191 a year – up from £4,989 in October last year.
Annuity rates have been boosted by soaring long-term gilt yields.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “Annuity rates are up an incredible 44% in the past year. The potential income for someone aged 65 with a £100,000 pension has risen by £200 in the past week alone. In recent years they’ve become also-rans of the retirement income market, but these rises should put them in contention again.
“Annuities were once the go-to product for retirement income, but the introduction of pension freedoms means people had more choice of how they accessed their money, and drawdown took centre stage. The scale and speed of annuity rate rises could offer food for thought for anyone who ruled out an annuity in recent years because of the level of income on offer.
“Being able to guarantee at least a chunk of your income in retirement is invaluable, and annuities can play a sensible role here alongside the state pension and any defined benefit payments, so they should always be a consideration.
“Some retirees are dissuaded because once you’ve bought an annuity, the rate is locked in forever, so those sitting on lower rates from last year can’t benefit from more recent rises. However, it’s always worth bearing in mind that you don’t need to lock an annuity in with your entire pension pot all at once. One sensible approach is to do it with chunks of your pension in stages, securing income to meet your needs, as and when it makes sense for you.
“This gives you the opportunity to secure higher rates as you get older, and you may also qualify for an enhanced annuity if you develop a medical condition at a later point, boosting your income again.”