Rising interest rates and shifting retirement strategies are changing the game for pension savers as they can secure more guaranteed income.
For those nearing retirement, understanding how to turn savings into reliable income is more important than ever.
According to the latest figures from the Standard Life Annuity Rates Tracker, average annuity rates for a healthy 65-year-old reached 7.72 per cent in May 2025, a significant jump from the 4.71 per cent recorded in 2020.
The report said: "A 65-year-old considering taking out an annuity could expect to receive an annual income of £7,720, based on a £100,000 pension pot."
Pete Cowell, head of annuities at Standard Life, part of Phoenix Group, said: "Our latest Annuity Rates Tracker shows annuity rates surged to their highest levels in years, offering retirees one of the strongest opportunities yet for securing a guaranteed income in retirement. This uplift has been driven by higher long-term interest rates."
Annuity rates have continued to rebound from historic lows seen during the pandemic. In May 2024, the average rate for a 65-year-old stood at around seven per cent. Over the past year, that’s a 10.2 per cent improvement.
Standard Life’s tracker, which monitors market-wide rates for annuities purchased at ages 60, 65, and 70, shows income rising with age:
- A 60-year-old could get 7.01 per cent, or £7,010 a year
- A 65-year-old could get 7.72 per cent, or £7,720 a year
- A 70-year-old could get 8.54 per cent, or £8,540 a year
Waiting to buy an annuity later in life might mean better rates, but purchasing earlier can lead to a higher total income across a longer retirement.
According to the tracker, a healthy 65-year-old man buying an annuity in May 2025 could expect a total lifetime income of £155,180.
How much can a £100,000 pension pot give you in retirement?GETTY For a woman of the same age, that figure rises to £172,940, reflecting longer life expectancy. At age 70, total income for a man would be about £136,680, and £153,770 for a woman.
Pete Cowell added: "While the recent upward trend has been steady, it feels unlikely annuity rates will fall back to historic lows.
"Interest in annuities is likely to remain strong, particularly given the anticipated changes to IHT in 2027, which may prompt more people to consider annuities as part of their retirement planning."
The annuity tracker also highlights the year-on-year gains:
- A 60-year-old saw income expectations rise from £154,860 in 2024 to £172,540 in 2025
- A 65-year-old man’s total expected income rose from £140,800 to £155,180
- A 70-year-old woman could now expect £153,770, up from £140,030
While annuity rates increase with age, Cowell advised a balanced approach
GETTYWhile annuity rates increase with age, Cowell advised a balanced approach.
He said: "For those who want to lock in an income for retirement and ensure essential needs are covered, but still want an element of flexibility, it is helpful to remember that annuities can be used alongside other decumulation strategies.
"One way is by keeping some savings in drawdown or by staggering the purchase of annuities to benefit from higher rates as you age.
"This offers the best of both worlds: the certainty and security of a guaranteed income, with the flexibility to respond to changing needs throughout retirement."
Annuities may become an increasingly attractive part of a retirement strategy
GettyThe figures are based on life expectancy data from the Office for National Statistics and only reflect annuity income.
With interest rates expected to remain relatively high and potential changes to inheritance tax looming, annuities may become an increasingly attractive part of a retirement strategy.
Whether locking in now or waiting for better rates later, understanding how far a £100,000 pension pot can stretch is crucial.
As annuity rates reach their highest levels in years, many retirees may now have a rare window to secure long-term financial stability.
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