Joint-life annuity charges at 17-year excessive | USAEMALL.com

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Joint-life annuity rates have climbed to their highest level since the global financial crisis in 2008, as soaring gilt yields boost the income available on the retirement products.

New market analysis showed the best joint-life income for a couple aged 65 and 62, based on a £100,000 purchase price for a level annuity, with a 50 per cent survivor benefit, is £7,015 today.

This is a record high since 2008, when the same lump sum would have delivered annual income of £6,742, according to Hargreaves Lansdown, the investment platform.

A joint-life annuity is a financial product that makes regular payments to the policyholder, which continues to pay an income, typically two-thirds or 50 per cent of the original pension, to a surviving spouse on death.

Historically, many annuity buyers have shunned joint-life options in favour of single-life annuities, which typically offer a higher starting income, because providers don’t have to factor in payments to a second policyholder.

However, Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said more people were now considering joint-life annuities, given “the potential they could be left with nothing if they tick the single life annuity box”.

The resurgence of joint-life rates comes alongside a broader improvement in annuity incomes offered by pension providers.

Average rates for a single-life annuity — which account for about two-thirds of annuity sales — rose nearly a tenth in the year to January 2025, according to insurer Standard Life, with rates gradually climbing since 2022.

The year-on-year rise means a 65-year-old man and woman would see their expected lifetime income from a single-life annuity boosted by £11,020 and £12,960 respectively had they exchanged a £100,000 lump sum in January 2025, compared with the same time in 2024.

Pete Cowell, head of annuity products at Standard Life, said the surge in annuity rates has been predominantly driven by long-term interest rates, but pricing was also influenced by the insurer’s other investments.

Billy Burrows, annuities expert and financial adviser with Eadon & Co, believes “we are at, or very close to, the peak of annuity rates”. He added: “Yields will probably start to fall in line with expectations of lower interest rates. But in the very short term, we may see rates increase even further as a result of the turmoil in the US.”

William Stevens, head of wealth planning at Killik,a wealth manager, said that although annuities could be a “useful tool” for individuals with a lower risk appetite, it was important to “bear in mind that you are giving up a lot of capital in exchange for the income”.

While annuity rates are high in relative terms, their historical returns pale compared to those on global stocks. Furthermore, the level annuities purchased by many retirees do not provide protection against inflation, which can significantly erode the fixed income afforded by retirement products over a lifetime of payments.

An annuity purchase is “potentially the biggest financial transaction of your life,” said Stevens, suggesting that people take advice before buying one. “You’re taking a bet on how long you might live. The longer you live, the better off the annuity is for you,” he added.