A dramatic rise in gilt yields means that one group are getting are far more for their savings than they used to.

Pensioners can now get a retirement income worth £3,000 a year more from a £100,000 nest egg than they could a decade ago. The increase means that annuities, where people hand pension savings to an insurance company in return for a guarateed income for life, are becoming much more attractive for retirees. A healthy 65-year-old with £100,000 can currently secure just over £8,000 a year through a single-life annuity with a five-year guarantee.

At the market lows a decade ago, the same pot would have bought an income of well below £5,000. The dramatic improvement comes as gilt yields, which help determine annuity rates, have surged to levels not seen for many years.

The 10-year gilt yield has climbed above 5.26%, its highest level since June 2008, while the 30-year rate has risen above 5.90%. Andrew King, pension technical specialist at Evelyn Partners, said: "Annuities are definitely back on the radar of many retirees."

He added that rates were at their highest levels for more than ten years even before the latest spike in bond yields. And there could be further gains for savers.

"It certainly seems unlikely the incomes on offer will fall in the coming weeks and months," Mr King said.

But retirees should beware of simply chasing the biggest headline income. Inflation is one of the biggest threats. An annuity paying £8,000 a year may look attractive now, but its spending power will be steadily eroded as prices rise.

Buying Protection against inflation, can guard against this, but there is a hefty price. For the £100,000 example, an inflation-protected annuity would start at only around £5,700 a year.

There is another crucial catch in that once an annuity is bought, the pension money handed to the insurer is generally gone for good.

Mr King said the great attraction was that it provided an income for life, removing the fear of running out of money in old age. But the drawback was that savers surrendered 'flexibility and choice'.

The big annuity comeback

Annuities fell dramatically out of favour after pension freedoms were introduced in 2015.

At the time, interest rates and annuity rates were at rock-bottom levels, encouraging retirees to keep their money invested and take an income through drawdown instead. But now the balance has shifted.

Stock markets have also performed strongly in recent years, leaving some savers with substantially larger drawdown pots.

Mr King said some were now looking to lock in those gains by converting part of their savings into a guaranteed income. And retirees do not necessarily have to choose between an annuity and drawdown. They can use both.

One approach would be to work out how much is needed to cover essential bills, subtract the State Pension and use an annuity to provide the shortfall. The remainder could stay invested in a flexible drawdown account.

£3,000 boost - but at a price

At £8,000 a year, a £100,000 annuity would pay out an amount equivalent to the original pot after 12.5 years.

That is below the life expectancy of a healthy 65-year-old. But this does not mean an annuity is automatically a good deal.

Someone who dies shortly after buying one could receive far less than they paid in, unless they have selected guarantees or other death benefits.

And there is a growing tax consideration too. From April 2027, unspent pension assets are due to be brought into inheritance tax calculations.

This is prompting some people with larger pension pots to reconsider keeping their money invested until death.

Mr King said annuities could be attractive for some people worried about inheritance tax because they turn pension savings into income and reduce the value of the estate. But he warned: "Once an annuity has been bought that sum disappears to the insurer."

For someone who dies soon afterwards, that could mean surrendering a pension pot that might otherwise have been passed to their family.