Annuity Rates Explained

Annuity rates determine how much regular income you’ll receive in exchange for your pension savings. They’re usually shown as how much income you’d get per year for every £10,000 you invest — for example, a rate of £500 would mean £500 a year for every £10,000, so £50,000 would buy you £2,500 a year. But what actually influences the rate you’re offered? This guide explains everything you need to know.

What Affects Your Annuity Rate?

1. Life Expectancy

Annuities work a bit like insurance — everyone’s money is pooled together and paid out for as long as each person lives. This means people who live longer end up receiving a bigger overall share, and those who don’t live as long receive less. The longer you’re expected to live, the lower your rate, since the provider will be paying your income for longer.

2. Your Health and Lifestyle

This is closely linked to life expectancy. If you have a health condition such as high blood pressure, raised cholesterol, diabetes, heart disease, cancer, stroke, or a respiratory condition, or if you smoke or drink above recommended levels, your life expectancy may be assessed as shorter — meaning you could be offered a significantly higher rate through an Enhanced Annuity, potentially up to 60% more income. Find out more about Enhanced Annuities →

3. Interest Rates

Annuities are partly funded by the interest providers earn on your money once it’s invested. When interest rates are low, providers earn less on that investment, which generally means lower annuity rates. Whatever the wider rate environment, an annuity always protects you against living longer than expected, since the income is guaranteed for life.

4. Gilt Yields

Annuity providers also invest heavily in UK government bonds, known as gilts, which pay a fixed return linked to prevailing interest rates and inflation expectations. When gilt yields are low, providers generate less return from these investments, which tends to push annuity rates down as a result.

5. Not Your Gender

Until December 2012, insurers were permitted to offer different annuity rates to men and women, since women have historically had longer life expectancies. Following an EU gender ruling, this was deemed unfair discrimination, and it has been illegal to offer different rates based on gender ever since.

Why Comparing Rates Matters

Since rates vary considerably between providers, and depend so heavily on your personal circumstances, it’s always worth comparing the whole market rather than accepting the first rate you’re offered. Read our guide to shopping around → to see how much of a difference this can make.

See What Your Rate Could Be

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We will not provide you with advice or recommendations as part of our annuity comparison service — we research the whole of the market and present you with the best available rates, and it is your decision how to proceed.

Retirement Professionals Ltd is an appointed representative of pi financial ltd, authorised and regulated by the Financial Conduct Authority. FCA number 622943.