The latest figures on annuities show returns at their highest levels since the financial crisis – and annuity sales have surged in response. But industry experts warn that caution is still needed before making what is an irreversible decision, and offer these five tips to help you make the right decision.

It might be a decade since pension freedoms dealt a major blow to the sale of annuities, but it is fully 16 years since the rate of return available was as high as in the current market.

The latest data from HL’s annuity search engine shows a 65-year-old with a £100,000 pension can currently get up to £7,639 per year from a single life level annuity with a five-year guarantee. This is the highest since December 2008, when men could get £7,646 pa. – and even higher than the £7,586 per year being quoted after the mini-Budget in 2022.

This has led to a surge in interest, with annuity sales hitting £7bn on 2024 according to the Association of British Insurers.

According to Helen Morrissey, head of retirement analysis, Hargreaves Lansdown: “It’s a reversal of fortune for a market that many thought had been all but killed off by a combination of rock-bottom interest rates and the Freedom and Choice reforms.

“Rising interest rates have seen incomes climb in recent years and people’s interest has risen along with them. It’s a momentum that will continue into 2025 as people mull the best option for securing a guaranteed income in retirement.”

Despite that, investment experts say that caution is still required.

Adds Helen Morrissey: “You need to consider your options carefully. Once bought, an annuity cannot be unwound, so if you act in haste you may find you are repenting at leisure if you don’t get the right type of product for your needs.”

These are her top tips from getting the most from an annuit

1.Shop around

If you just accept the first quote then you may be missing out. There are several types of annuities and several providers so it’s worth doing a comparison on an annuity search engine to make sure you are getting the best deal

2. Consider your circumstances

For instance, single life annuities offer higher incomes than joint life ones but the joint life one will offer an income to your spouse should you die first. If you opt for the single life version, then your partner could be left with nothing if you die before them.

3. Give all your health details

The more details you can give about your health and lifestyle the better as it can result in a higher rate of income that you benefit from for the rest of your life – and that includes whether your weight or if you are a smoker

4. Consider the impact of inflation

If you opt for a level annuity at outset then you might find its purchasing power eroded by inflation over time. Inflation-linked annuities offer an income that grows over time and could be worth considering. However, you will have to accept a lower starting income.

5. Don’t put all your eggs in one basket

You don’t have to use your entire pension to purchase an annuity on day one. Instead, you can purchase your guaranteed income in slices throughout retirement. This enables you to secure income as your needs change while leaving the rest of your pension invested where it can grow.

“Not only that,” Helen adds, “you can benefit from higher incomes as you age ­– and if you develop a condition that qualifies for an enhanced annuity then you could get an extra income boost.”

So what do changing annuity rates mean for your future retirement?

If annuities form a potential part of your future plans, then you may want to check what varying rates of return might mean for your expected income during retirement.

Equally, you might want to see how your overall situation would be affected by the different options available: for example, contrasting a level income annuity with one growing by 3% per annum, or taking out a series of annuities at different times in the years ahead.

You can do this simply by running different scenarios through your RetireEasy LifePlan, and you’ll get back easy-to-comprehend graphs to show you at a glance what the impacts will be to your available income in each year of your retirement.