Annuity rates continued to surge in value at the beginning of 2025, according to the latest data from Hargreaves Lansdown’s annuity search engine.

According to the tracker, a 65-year-old with a £100,000 pension can now get up to £7,425 a year from a single life level annuity with a five-year guarantee - up from £7,235 a year last week.

Whilst it was generally anticipated that annuity rates would fall 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.

However, this was partially due to rising gilt yields, and the first week of 2025 saw a dramatic spike in government borrowing costs, with the 15-year gilt yield standing at 5.179 per cent, compared to 4.23 per cent on the same date in January 2024.

Furthermore, financial markets are reducing their expectations around the number and speed of interest rate cuts in 2025, which means there’s a “strong possibility” that annuity rates will be maintained or even increase in the coming year.

Canada Life retirement income director, Nick Flynn, suggested that the recent increase in the cost of government borrowing was due to additional government spending, global uncertainty, and higher taxes.

Echoing this sentiment, Hargreaves Lansdown head of retirement analysis, Helen Morrissey, said that “turmoil in the bond markets” has caused annuity incomes to soar.

Consequently, both experts advised caution when shopping for an annuity.

“Annuities offer individuals security and a guaranteed income for life,” said Flynn, “but 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 instead of accepting your existing insurer’s offer, as the decision to purchase an annuity is irreversible.”

“It is important to look before you leap,” Morrissey added: “Once bought, an annuity cannot be unwound, and different providers offer different rates. If you take the first quote provided without checking the rest of the market, you may have made a costly mistake. An annuity search engine can help you check the market quickly and easily before making a decision.

“You also don’t need to annuitise all your pensions simultaneously if this doesn’t work for you.

"As your needs evolve, you can take a flexible approach and annuitise in stages throughout your retirement. This means your remaining pot can remain invested in income drawdown where it can grow while you get the potential to take advantage of higher annuity incomes as you age.”

---