In Britain and most European countries retirees usually invest their savings in guaranteed lifetime pensions and annuities. That isn’t the case in Australia. Here most retirees avoid annuities if they have a choice. However modern annuities have changed. They look much more appealing now.

The main reason people have avoided annuities in the past is that they lose control of their capital. Retirees don’t like the inaccessibility, giving up their capital.

Traditionally buying an annuity involved a simple exchange of a lump sum for a guaranteed income for life, with the income usually increasing with the cost of living. That isn’t the only option now. Annuities are now much more sophisticated and offer many options to suit individual preferences.

Most importantly, forty per cent of the purchase price is discounted from the Centrelink Assets Test until age 84. From age 84 on, providing the annuity has been held five years, seventy per cent of the value is disregarded.

This can mean a large boost in the Age Pension for many retirees. Also, some people with assets exceeding the Assets Test cutoff can qualify for a part Age Pension when they otherwise would not.

One company that has been offering annuities for many years is Challenger. Its latest products offer a full refund of the purchase price if the retiree dies within the first half of their life expectancy. They also allow people to make partial withdrawals at any time up to their life expectancy.

The annuities still guarantee an income for life even if the retiree lives to 105, or more.

The payments annuities make are linked to interest rates current at the time they are bought. There are still a few elderly investors around who bought lifetime annuities paying 12 and 15 per cent in the 1980’s and early 1990’s.

Interest rates were very low from around 2015 to 2022. Since then they have increased and so have annuity payments, making the lifetime income streams more attractive.

Challenger offers annuity payments that are indexing to the inflation rate (CPI), to changes in the RBA cash rate, or to any of five investment indices.

AMP and Generation Life both offer annuities that allow investors to choose their underlying investments. If growth options are chosen that include shares and property, and they earn higher returns, the retiree receives larger income payments.

Australian interest rates are at or very close to their peak. They are likely to start coming back down in late 2024 or 2025 so now may be a good time to learn what annuities offer and lock in an attractive interest rate for life.