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Fixed-Term Annuity Rates Are On The Rise! What’s Causing The Growth?
Ruby Layram
23rd Apr 2025
If you’ve been keeping an eye on retirement income options, you might have noticed a buzz around fixed-term annuities lately.
Rates are climbing, and that’s got a lot of folks wondering: what’s behind this uptick? More importantly, what does it mean for you and your retirement plans?
In this post, we will take a look at why rates are rising and whether or not annuities might be a good option for your retirement plans!
First Things First: What’s a Fixed-Term Annuity?
In simple terms, a fixed-term annuity gives you a guaranteed income for a set number of years- say five, seven, or ten. It’s different from a lifetime annuity, which pays you a fixed income until you die.
With a fixed-term annuity, once the agreed period ends, the income stops, and you can either buy another annuity, take a lump sum (if there’s a maturity value left), or explore other retirement income options.
It’s a sort of “middle-ground” retirement option. You get the stability of regular payments without having to commit for life, which can be handy if you’re not quite ready to lock in your pension plan permanently.
What’s Happening with Fixed-Term Annuity Rates?
Over the past year, fixed-term annuity rates have seen a notable increase. For instance, as of January 2025, rates for a five-year fixed-term annuity stood at 21.91%, while ten-year terms were at 12.33%, and fifteen-year terms at 9.18%.
This rise means that if you’re considering locking in your retirement income for a set period, you could now secure a higher payout than in previous years.
What’s Driving the Increase in Rates?
Several factors are contributing to this upward trend in fixed-term annuity rates:
1. Rising Interest Rates
Annuity providers typically invest in government bonds to generate returns.
When interest rates climb, the yields on these bonds increase, allowing providers to offer better annuity rates.
The Bank of England’s decisions to raise interest rates in response to inflation have played a significant role here.
2. Fluctuations in Gilt Yields
Gilt yields, which are the returns on UK government bonds, have experienced volatility.
For example, the 15-year gilt yield reached a 16-year high of 5.29% on January 13, 2025.
Higher gilt yields directly influence annuity rates, enabling providers to offer more attractive terms.
3. Economic Uncertainty
Global economic factors, such as trade tensions and geopolitical events, have led to market fluctuations.
Investors often seek safer assets like government bonds during uncertain times, impacting their yields and, consequently, annuity rates.
4. Increased Demand from Retirees
With more people looking for safer ways to draw income from their pension pots- especially in uncertain markets- demand for fixed-term annuities is climbing.
As people near retirement, they want income certainty without locking everything away forever. This demand pushes providers to stay competitive and offer better rates.
5. More Competition Among Providers
As annuities become more appealing again, more insurers are jumping back into the market.
That extra competition is great news for you. It means better products, more flexible features, and- yes- higher rates.
What Does This Mean for Your Retirement Planning?
With fixed-term annuity rates on the rise, you might be wondering how this impacts your retirement strategy.
Here are a few considerations:
1. Opportunity for Higher Guaranteed Income
Locking in a fixed-term annuity now could secure a higher guaranteed income for the duration of the term compared to previous years.
This can provide peace of mind, as you know exactly what you’ll receive during that period.
2. Assessing the Fixed Term Length
Consider how long you want to lock in your annuity. Shorter terms might offer higher rates but will require reevaluation sooner.
Longer terms provide stability but may offer slightly lower rates.
Align this decision with your overall retirement goals and other income sources.
3. Diversifying Retirement Income
While fixed-term annuities offer guaranteed income, it’s wise to diversify your retirement portfolio.
Combining annuities with other investment options can provide flexibility and potential for growth.
Is Now the Right Time to Purchase a Fixed-Term Annuity?
Timing the market is always challenging, but with current trends, now could be a great moment to explore fixed-term annuities.
However, individual circumstances vary, so it’s essential to assess your personal financial situation and retirement goals.
How Pension Potential Can Help You to Find The Best Annuity Rates
Navigating the maze of annuity options can feel overwhelming, but that’s where the pros and Pension Potential can come in!
Pension Potential is a UK-based service dedicated to assisting individuals in exploring their retirement income options. They focus on providing clear, understandable guidance to help you make informed decisions about your pension.
The team at Pension Potential provide a selection of services, including:
- Comprehensive comparison of annuity rates: Pension Potential allows you to compare annuity rates from various providers, ensuring you have access to a broad spectrum of options.
- Personalised guidance: Their team of experts is available to answer questions and provide insights tailored to your needs.
- User-friendly tools: The platform offers intuitive tools that simplify the process of evaluating different annuity products, making it easier for you to visualise potential outcomes based on your pension pot and retirement plans.
By using Pension Potential’s services, you can confidently explore your annuity options, ensuring that you secure a retirement income that best suits your lifestyle and financial objectives.
The recent rise in fixed-term annuity rates presents an interesting opportunity for those nearing retirement or looking to secure a portion of their retirement income.
Understanding the factors driving these changes can help you make informed decisions that align with your financial objectives.
Remember, while the current landscape appears favourable, always consider your unique situation and consult with an expert from Pension Potential to determine the best course of action for your retirement planning.
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Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. When investing your capital is at risk.
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