The marked improvement in annuity rates over the past 12 months has also had a positive impact on the cost of guarantees, according to Canada Life research.
In one example, the provider said the margin between no guarantee and a 20-year guarantee is just a 4% reduction in annual income, with a £100,000 annuity securing an income of £6,532 vs £6,270, a reduction of £262 a year.
The 20-year guarantee will return income of at least £125,400, irrespective of what happens to the customer.
Nick Flynn, retirement income director at Canada Life said: “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.”
He added: “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."
How the costs compare - £100,000 purchase price
Guarantee period, (to cover early death) | Annual Income, payable for life | Minimum Guaranteed income | Change in annual income to provide additional protection |
None | £6,532 |
|
|
5 years | £6,522 | £32,610 | - £10 |
10 years | £6,489 | £64,890 | - £43 |
20 years | £6,270 | £125,400 | - £262 |
30 years | £5,879 | £176,370 | - £653 |
50% Value protection | £6,505 | £50,000 | - £27 |
100% Value protection | £6,388 | £100,000 | - £144 |
Source: Canada Life annuity rates as at 11/04/2023. Healthy life aged 65, average postcode