Annuity Rates: What They Are and How Much Income You Get
An annuity rate turns your pension pot into a guaranteed income for life. This guide explains what the rate means, what sets it, what today's rates look like, and how to shop around before you lock one in.
Key takeaways
- An annuity rate is the percentage of your pot paid to you each year for life.
- Rates are near multi-year highs, above 7% for a healthy 65-year-old since 2022.
- Gilt yields, your age, your health and the options you pick all move the rate.
- Level annuities pay most at the start; inflation-linked ones start lower but rise.
- Shopping around can be worth around £1,500 a year on a £100,000 pot.
What annuity rates are
An annuity is a deal with an insurer: you hand over some or all of your pension pot, and the insurer pays you a guaranteed income for the rest of your life. The annuity rate is the percentage that turns the pot into that income: a £100,000 pot at 7% pays £7,000 a year, and at 8% it pays £8,000.
The rate is fixed on the day you buy, so your income does not move with the markets afterwards, unless you chose one that rises each year. That certainty is the point of the product, but the decision is usually irreversible. Annuities are a UK product for defined contribution pensions; our pension vs 401(k) guide explains how a UK pension differs from the American 401(k).
How annuity rates are set
The biggest driver is the yield on UK government bonds, known as gilts. Insurers buy long-dated gilts with annuity money, and the income from those bonds funds your payments. When gilt yields rise, insurers can offer more; when they fall, rates fall. That is why rates climbed sharply from 2022.
Your age is the second driver: the older you are, the higher the rate, because the insurer expects to pay for fewer years. Your health is the third: smokers and people with conditions such as diabetes or high blood pressure can get enhanced annuities, with Which? finding uplifts of 6% to 15% for one example profile. Declare your health honestly and in full.
What annuity rates look like today
Rates move daily, so any figure in print is a snapshot, not a quote. Which? reported on 9 November 2026 that a healthy 65-year-old with a £100,000 pot was offered £6,703 to £8,198 a year for a single-life level annuity, and £7,515 to £9,086 at 70. Hargreaves Lansdown's 5 November 2026 comparison showed a best rate of £8,209 at 65.
A healthy 65-year-old has been offered above 7% since 2022, and above 7.5% since the start of 2025. In the mid-2010s the same pot bought roughly £4,500 a year. Inflation-linked annuities start much lower: £5,641 a year at 65, against £8,209 for a level one.
Level, inflation-linked and enhanced annuities
A level annuity pays the same amount every year, giving the highest starting income. Its weakness is inflation: at 3% inflation, £7,000 a year buys roughly what £5,200 buys today after ten years. An inflation-linked annuity rises with the Retail Prices Index, but starts 25% to 35% lower; the two cross over only if you live into your late seventies.
An enhanced annuity is a better price for the same shape: poor health or smoking can lift the rate, so answering the health questions fully is the most valuable step before buying.
Single-life, joint-life and guarantee periods
A single-life annuity pays only while you are alive and gives the highest income. A joint-life annuity continues to your spouse or partner, usually at 50%, two-thirds or 100%, and starts roughly 5% to 10% lower for a 50% spouse's pension.
A guarantee period promises payments for five or ten years even if you die sooner, with the balance going to your estate. It costs very little: a five-year guarantee trimmed a 65-year-old's income from £8,209 to £8,145 a year in Hargreaves Lansdown's November 2026 figures, a difference of just £64.
Worked example: what a £100,000 pot buys
Worked example, labelled illustrative: a healthy 65-year-old with a £100,000 pot buying a single-life level annuity at 8% gets £8,000 a year, about £667 a month before tax. The same person choosing an inflation-linked annuity might start at £5,641 a year, or £470 a month.
Scale the pot and the income scales with it: £150,000 at 8% buys £12,000 a year, and £50,000 buys £4,000. A one percentage point better rate on a £100,000 pot is £1,000 extra every year for life.
Shopping around: the open market option
You do not have to buy from the company that holds your pension. The open market option is your right to take your pot to any provider, and it is the easiest way to raise your income: Which? found the same 65-year-old offered £6,703 by one provider and £8,198 by another, a gap of £1,495 a year for life.
Get quotes from at least three or four providers on identical terms, and check how long each quote holds, since rates move daily. Pension Wise, the government's free guidance service, offers appointments to anyone aged 50 or over with a defined contribution pension.
When an annuity may not suit you
An annuity is not right for everyone. The income is guaranteed, but the pot is gone: you cannot change your mind, access the lump sum later, or leave it to your family, except through a joint-life option or a guarantee period. If you value flexibility, drawdown, leaving the pot invested and taking income as needed, may suit you better. Our guide to the state pension age is worth reading too, because the State Pension is itself a guaranteed, inflation-linked income.
Tax matters as well: annuity income is taxable, so if your total income including the State Pension passes the £12,570 personal allowance, you pay tax on the excess.
Sources & further reading
- Which?, Best annuity rates November 2026Verified 10 Nov 2026.
- Hargreaves Lansdown, Best annuity ratesVerified 10 Nov 2026.
- GOV.UK, Tax on your private pension: annuityVerified 10 Nov 2026.
This article is general information only, not financial advice.