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Annuity rates have been at their highest levels in more than 10 years

Retirees are being handed a significant boost to their guaranteed retirement income.

Surging government borrowing costs, which have rattled mortgage holders and the public purse, are delivering an unexpected silver lining for pension savers.

A healthy 65-year-old can now secure more than £8,000 a year in guaranteed income from a £100,000 pension pot by purchasing a lifetime annuity, according to Hargreaves Lansdown. That compares with well below £5,000 at market lows seen a decade ago.

The jump has been fuelled by bond yields climbing to levels not witnessed in nearly three decades. Annuity pricing is typically tied to 15-year gilt yields, which have reached 28-year highs of around 5.62 per cent.

Upcoming inheritance tax changes and worries about stretched stock market valuations are also prompting savers to reconsider their options.

The 10-year UK gilt yield climbed above 5.26 per cent this week, reaching its highest point since June 2008. Yields on 30-year gilts also surged past 5.90 per cent, touching levels not seen in 28 years.

The ongoing military conflict between the United States and Iran has been a key factor pushing bond yields higher across global markets.

Persistent concerns about inflation and rising government debt levels have added further upward pressure.

While these elevated borrowing costs spell trouble for the Treasury and anyone seeking a mortgage, they are proving beneficial for those approaching retirement.

Insurers use gilt yields as a benchmark when setting annuity prices, meaning the higher yields climb, the more generous the guaranteed income on offer becomes.

Andrew King, pension technical specialist at wealth management firm Evelyn Partners, said annuities had firmly returned to the conversation among those planning for retirement.

Mr King said: "Annuities are definitely back on the radar of many retirees as annuity rates were at their highest levels for more than 10 years, even before this latest spike in bond yields.

That means the guaranteed annual income that someone can buy with all or part of their pot is better than it has been at any point since pension freedoms arrived."

Growing client interest is not solely driven by improved rates, he added.

The inclusion of unspent pension savings within inheritance tax liabilities from April 2027 is encouraging some to convert part of their pot into an annuity rather than maintaining a large drawdown fund.

Mr King said this was particularly relevant for those with substantial pots or existing IHT exposure.

Another factor driving interest is that many savers have seen their drawdown pots grow considerably during the bullish stock markets of recent years.

Some are now looking to lock in those gains by converting a portion into a guaranteed income stream.

Mr King said: "Annuity rates could go higher from here if bond yields remain close to or above their current levels as insurers continue to reprice annuity products.

It certainly seems unlikely the incomes on offer will fall in the coming weeks and months, so there is plenty of opportunity for savers on the verge of or in retirement to consider these products."

He noted that annuity rates can vary significantly depending on a buyer's age, health and location.

Product features such as inflation protection, guaranteed payment periods and joint-life death benefits also affect the income offered.