In the last two years annuity rates have risen by more than half, according to Canada Life, giving a 65-year-old with a £100,000 annuity an extra £2,500 a year.

Rates have increased around 54%, a record amount, according to the retirement specialist.

At the start of 2022, a benchmark annuity with a £100,000 purchase value would have paid an income in the region of £4,540 a year for someone aged 65 with no health or lifestyle conditions to declare.

Two years on, that same annuity would pay around £7,000 a year, an increase of 54%, driven by rising interest rates and the returns available on gilts.

Over the course of a 20-year retirement, the annuity at today’s rates would deliver around £49,200 extra income compared to an annuity sold in January 2022, the firm said.

Nick Flynn, retirement income director at Canada Life said: “Annuities have been on quite a remarkable journey. While many had effectively written off annuities due to the perceived poor value being generated, they are now very much back in vogue due to the rapid change in fortunes.

“While I can’t predict future annuity rate movements, the immediate future for the market is looking very positive.”

Today, a benchmark annuity for someone aged 65, with no pre-existing health or lifestyle conditions, would pay in the region of 7%. That annuity rate can increase significantly when disclosing common health or lifestyle conditions, such as diabetes, high blood pressure or being a smoker. Age can also have a big influence on the annuity rate offered.

Last month, Canada Life calculated that the top open market annuity could pay £662 more a year over a typical 20-year period than the worst-paying.