The annuity break-even point, the tipping point at which savers receive their original investment back through income, has fallen by five years due to a "significant improvement" seen in annuity rates over the past 18 months, research from Canada Life has revealed.

The analysis showed that the net result of the annuity rate improvements means the payback period on a benchmark £100,000 annuity today is 14 ½ years, for a 65-year-old that generates an income of £6,907 a year.

This compared to the same annuity paying an income of £5,240 five years ago, with a break-even point of 19 years, and the same annuity paying an income of £5,670 a year ago, with a pay-back period of 18 years.

Considering this, Canada Life retirement income director, Nick Flynn, argued that “annuities are firmly back in fashion”, highlighting the fall in the break-even point as demonstration of “just how much the market has moved in a relatively short space of time”.

He continued: “Annuity rates are currently at levels not experienced since the banking crisis of 2008/9, which shows just how far we’ve come. It’s difficult to predict where annuity rates will go, but markets have already priced in interest rate movements, while yields on gilts have stabilised.

“Considering your retirement choices shouldn’t be a binary decision between annuity and drawdown.

"Rather than adopting an either-or approach, you can consider blending annuity and drawdown to provide the best of both worlds, a risk-free retirement income and flexibility.

"Annuities can also be bought in tranches as you move through retirement, securing a better rate as you age.

“Working with a regulated financial adviser or consulting an annuity broker will ensure you consider all of your options and keep your retirement plans on track.”

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