Annuities, which provide a guaranteed income in retirement, pay out the most in more than a decade.
Rates have risen by over 35pc over the past year, reaching a 12-year high.
This means a 65-year-old with a £100,000 pension could now get an annuity income of £6,637, according to investment platform Hargreaves Lansdown.
Last year they would have only received around £4,900 – an increase of more than £1,700.
William Burrows of the Retirement Planning Project, a financial planner, said for many now would be a good time to consider converting their pension savings into a guaranteed income in retirement.
“Now that rates have increased, people who are taking regular income from drawdown may want to seriously consider getting an annuity, as the returns may be more attractive,” he said.
Annuities have fallen out of favour in recent years in part because of the introduction of pension freedoms in 2015, which opened up more options for retirees. Prior to that, buying an annuity was the only option for most people with a defined contribution pension.
Demand for annuities also wilted due to sluggish rates, which hit an all-time low in the aftermath of the Brexit vote.
The rates offered by annuity providers are determined by long-term gilt yields which are affected – among other things – by the Bank Rate.
Mr Burrows said that annuity rates would likely continue to rise over the next few years, although not at the rapid pace seen so far in 2022.
Because an annuity cannot be unwound once it is bought, Helen Morrissey from Hargreaves Lansdown said would-be buyers who are wary of locking into a single rate should know they do not have to annuitise their pension all at once.
“A good approach could be to do so in stages, securing income to meet your needs as you need it,” she said.
“This gives you the opportunity to secure higher rates as you age, and you may also qualify for a further boost to your income through an enhanced annuity if you develop a medical condition at a later point.”