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

Source: Canada Life annuity rates as at 11/04/2023. Healthy life aged 65, average postcode