Nearly one million people are considering annuities for the first time as a result of rising annuity rates, according to a new prediction.

Most are seeking guaranteed stable incomes and want to make the most of higher rates now on offer and avoid market volatility, says the research by Legal & General Retail.

L&G warns, however, that misconceptions are still high as 44% of people want a guaranteed income in retirement but less than half recognise an annuity as a potential solution.

Legal & General says annuity rates have risen substantially recently after years of decline. L&G analysis of its own data found that its annuity rates typically increased by around 40% from October 2021 to October 2022, and over 60% since 2016.

It says nearly one million (990,000) pre-retirees - those aged over 55 and still in work - are considering annuities for the first time in preparation for their retirement.

One in six people approaching retirement but still working (16%) are looking at annuities due to improved rates. This is in addition to the 828,000 (14%) of working over-55s who had always planned to buy an annuity in retirement, L&G says.

If the figures are correct they represent a remarkable turnaround for annuities which have taken second place to retirement income drawdown in recent years and fallen out of favour.

Aside from the improvement in rates (18%), people considering an annuity are drawn by the stability of a guaranteed income making it easier to plan their finances (78%) and the assurances the product offers in a volatile market (36%), L&G said.

While annuities are coming back into favour there is still a lack of awareness. Of the one in five pre-retirees who would not consider an annuity (20%), 16% said it was because they believe they offered a bad deal.

An additional two out of five pre-retirees (44%) described wanting a guaranteed income for the rest of their lives but only half that number want or are considering an annuity, despite this being what they are designed to achieve.

Lorna Shah, managing director of retail retirement, Legal & General Retail, said: “Despite annuities becoming more popular, we still need more awareness of the flexibility of fixed-term annuities and the benefits of enhanced annuities.

“Our research shows there’s still a lack of understanding about what an annuity is and what it can offer. This means people risk having an ‘either, or’ approach to funding their retirement, when in fact a blended approach might be more suitable.”