If you want a guaranteed retirement income, there is only one tried and tested option.

Ten years ago, when George Osborne made a surprise announcement introducing pension flexibility, the demise of the pension annuity was widely predicted. However, figures recently released by the Association of British Insurers show annuity sales last year were above their 2014 level and double their 2020 low point. There are several reasons for the annuity revival:

• Long-term interest rates, which underpin annuities, have risen in the past few years.
• Some people who took advantage of the flexibilities when they started their retirement income now want more security. The complex mathematics of annuities means that the older the individual, the harder it is for pension flexibility options to match the guaranteed income from an annuity. At age 75 an annuity can provide an income for life of over 9.5%.
• Last autumn’s Budget has called into question the use of pension flexibility to build up an inheritance for your family. The current proposals, due to take effect from April 2027, will mean inheritance tax (IHT) is payable on any fund remaining at death unless it passes to a surviving spouse or civil partner. In addition, as now, income tax is chargeable on any benefits if you survive until beyond age 75. In theory the combined tax rate could be an effective 67%.

The rates quoted above are for a single life annuity with level payments, but you can choose joint annuities and build in fixed or inflation-linked increases. The annuity market is a competitive one, with rates changing rapidly. That, and the fact that once an annuity is in place, it is virtually impossible to change, means advice is vital.