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.
Rates Move — and Nobody Can Time Them Perfectly
Annuity rates have changed enormously over time. They were in double figures through much of the 1990s, fell for the best part of two decades as interest rates and gilt yields declined, reached historic lows during the era of ultra-low interest rates, and have since recovered strongly as gilt yields have risen — annuity purchases have picked up sharply as a result, as more retirees look to lock in guaranteed income. You can see this whole journey on our historic annuity rates chart.
What this history teaches is that broad rate levels rise and fall with the wider economy, and no one — including us — can predict exactly where they will be next. What you can control is making sure that whenever you do decide to buy, you get the best rate available for your own circumstances rather than a generic estimate. That is what the rest of this page, and our free comparison service, are for.
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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 — which is also why your rate rises the older you are when you buy.
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 — and vice versa when yields rise.
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 — the difference between providers for identical circumstances can be substantial, and once an annuity is set up the rate is locked in permanently. Read our guide to shopping around → to see how much of a difference this can make.
It is also worth being clear about whether an annuity is the right route for you in the first place. Our guide to choosing between an annuity and drawdown sets out the trade-offs between guaranteed income and flexibility, and why many retirees end up combining the two.
See What Your Rate Could Be
The only way to know your actual rate is to ask — general figures and online calculators can only ever give a rough estimate, since your true rate depends on your exact age, health, lifestyle, fund size and the options you choose. Our free comparison service searches the whole of the annuity market on your behalf, including any enhancement your health or lifestyle may entitle you to, and there is no obligation to proceed.
Annuity Rates: Common Questions
What is an annuity rate?
An annuity rate determines how much annual income your pension fund will buy. It is usually expressed as the income received for every £10,000 invested. A rate of £500, for example, would mean £500 a year for every £10,000, so a £50,000 fund would produce £2,500 a year.
What affects the annuity rate I am offered?
Your age, your health and lifestyle, prevailing interest rates and gilt yields, the size of your fund, and the options you select. Adding a spouse’s pension, inflation protection or a guarantee period will reduce your starting income. Since December 2012 it has been illegal to offer different rates based on gender.
Do annuity rates improve as you get older?
Generally yes. The older you are when you buy, the higher the rate tends to be, because the provider expects to pay the income for a shorter period. This is why some people choose to delay annuitising, or to buy in stages across several years rather than all at once.
How much difference is there between providers?
The difference can be substantial for identical circumstances, and it widens once options such as joint life or escalation are involved, because providers price these features quite differently. Accepting the first offer without comparing is how retirees leave income on the table for life.
Can I find out my rate without committing to anything?
Yes. Our comparison service searches the whole of the annuity market and shows you the best available rates for your circumstances, free of charge and with no obligation to proceed. General figures and online calculators can only ever give a rough estimate, since your actual rate depends on your personal details.
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This page is for general information only and does not constitute advice or a quotation. Annuity rates change regularly and can go down as well as up; past rate levels are not a guide to future rates. Your personal rate depends on your age, health, lifestyle, fund size and chosen options. Enhanced rates depend on individual health and lifestyle and not everyone will qualify. An annuity cannot normally be changed or cancelled once set up, and will not be right for everyone. 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. Free impartial guidance is available from MoneyHelper. Retirement Professionals Ltd is an appointed representative of pi financial ltd, authorised and regulated by the Financial Conduct Authority. FCA number 622943.