The ‘significant’ improvement in annuity rates over the past 12 months has had a positive impact on the cost of guarantees, according to analysis from Canada Life.

It found that the margin between having no guarantee and having a guarantee period was minimal.

For example, annuity buyers would see just a 4 per cent reduction in their annual income with a 20-year guarantee compared to an annuity with no guarantee.

A £100,000 annuity would give a pensioner an annual income of £6,532 with no guarantee, or £6,270 with a 20-year guarantee, a reduction of £262 a year.

The 20-year guarantee would provide a minimum guaranteed income of £125,400.

A five-year guarantee would result in annual income of £10 less than no guarantee, while a 30-year guarantee would provide £653 a year less in income.

Guaranteed periods on annuities enables the customer’s spouse or beneficiary to continue to receive their income after the death of the annuity purchaser.

Meanwhile, if a pension holder purchases a 50 per cent value protection, they would receive £27 less a year in income, while those purchasing a 100 per cent value protection would receive £144 less a year.

“As annuity rates have improved so has the cost of the death benefits available,” commented Canada Life retirement income director, Nick Flynn.

“No longer do clients need to trade off a big drop in income to provide valuable guarantees. The reduction in income from choosing a longer guarantee period which effectively provides a ‘money-back’ guarantee, is now so narrow as to cost peanuts, so it’s completely bonkers not to consider some guarantees to provide additional certainty.

“Now one of the biggest barriers to annuities, ‘I won’t get my money back if I die early’, can really be challenged and guaranteed periods need to be explored.

“People considering annuities as part of their retirement income plan should seek the help and support of a specialist broker or regulated financial adviser. That will help ensure all options are considered in the rounds before making any irreversible decisions.”

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