Annuity rates jump nearly 10% in a year – is now a good time to buy an annuity?

Average annuity rates have reached a level where it now takes just 13 years for someone to get back in income what they paid out to buy the guaranteed retirement payments for life – 10 years less than when rates were at their lowest.

An annuity is an insurance product that delivers a guaranteed income for life in exchange for a pension pot. Annuity rates determine how much annual income you can buy from a pension pot in retirement. It's expressed as a percentage, where a higher rate means you receive a larger income.

Annuity rates have risen 9.68% in the 12 months to September, hitting 7.65%, according to the latest figures from the Standard Life Annuity Rates Tracker.

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This translates to a payback period of approximately 13 years, meaning a 65-year-old retiree would begin receiving more than they initially invested from the age of 78. This is an improvement of nearly 10 years compared to when rates were at their lowest in September 2019.

A healthy 65-year-old with a £100,000 pension pot could now expect to receive an annual income of up to £7,650. This is not far off the all-time high of £7,947 recorded in June 2025.

The current annual income is £670 more than in September 2024, when the average rate stood at 6.98%. That is roughly the average cost for a weekend getaway for two within the UK, covering travel, accommodation, and dining.

This could translate to an additional £14,000 for a healthy 65-year-old man, and £15,000 for a healthy woman over the course of their retirement.

Today’s figure is a vast improvement on the £4,943 annual income available in August 2021, for the same sized pension pot.

As annual annuity incomes have improved, so too has the lifetime total someone buying an annuity can expect. That is the amount in income likely to be paid out to a retiree who purchases an annuity.

According to Standard Life’s Tracker, a healthy 65-year-old male who bought an annuity in September 2025 at a rate of 7.65% could expect a total lifetime income of £154,000. This is £14,000 more than a year ago. For a female of the same age, the expected income was £171,000 – a total of £15,000 more than a year ago.

Meanwhile, a healthy 70-year-old who bought an annuity in September 2025 could expect a rate of 8.38%. For a man, this would provide a total lifetime income of £134,000 – which is £10,000 more than a year ago – while a woman could expect to receive £151,000, up by £11,000 since last year.

Pete Cowell, head of annuities at Standard Life, said: “Annuity rates remain strong and continue to offer valuable income certainty for retirees, following a slight dip since May. Notably, at today’s rates, a 65-year-old would need to live to 78 to break even – almost a decade earlier than during the rate lows. In addition, around half of customers could qualify for an enhanced annuity, unlocking even higher income and a shorter payback period.”

So, why have annuity rates been rising? Annuity rates are closely linked to government bond (gilt) yields, which surged to their highest level since 2008 in January.

Gilt yields are affected by interest rates; the rise in interest rates over the past few years has been good news for annuity incomes.

However, the fall in interest rates in 2025 – the Bank of England has reduced rates three times this year, with its most recent cut in August, from 4.25% to 4% – does not seem to have affected annuity incomes.

Six providers offer annuities to new customers, and last year, 69% of annuity buyers switched – taking an annuity from a different provider to the one they held their pension savings with – compared to 64% in 2023.

Shopping around for an annuity can get you a better deal compared to staying with your current pension provider.

If you're thinking of buying an annuity, we look at the outlook for annuity rates, and what you can do to ensure you get the best deal.

Will annuity rates fall?

The outlook for annuity rates this year depends on what happens to gilt yields. If yields stay high, or soar further, we could see an increase to annuity rates.

But, if interest rates fall, gilt yields may follow suit, which will negatively impact annuity rates.

Holly Tomlinson, financial planner at the wealth manager Quilter, comments: "Annuity rates are closely tied to government bond yields, which can be influenced by changes in interest rates. A reduction in the base rate may lead to lower bond yields, potentially resulting in less favourable annuity rates for retirees."

Indeed, annuity rates drifted downwards in 2024 following two interest rate reductions, but then soared during the gilt turmoil in January.

However, Morrissey points out that "we aren’t expecting the Bank of England to cut interest rates anywhere near as quickly as they raised them".

Why are annuities so popular?

A big reason is the fact annuities represent much better value, and pension savers can now get a bigger annual income in exchange for their pension pots compared to if they’d bought the same annuity just a few years ago.

This income is guaranteed as long as they live, so it provides security and peace of mind that the insurer will keep paying the money regardless of how long the retiree lives. Some annuity payouts increase each year, helping eliminate the inflation risk, while others pay an income to a spouse on death.

Another reason why annuities have become more popular in recent months is last year's Autumn Budget announcement that pension pots will be liable for inheritance tax from April 2027.

Pete Cowell, head of annuities at Standard Life, comments: “Looking ahead, we expect annuity rates, as well as the demand for these types of products, to remain strong, especially with pensions being brought into scope for inheritance tax from 2027. Wealthier savers may be encouraged to access more of their pensions, with annuities becoming an increasingly attractive way of doing so.”

Morrissey adds: "This will remove many people’s rationale for using income drawdown as they used it to pass the pension down generations tax-efficiently rather than draw an income from it. As they revisit their retirement income plans, many may opt to secure a guaranteed income through an annuity instead.”

Is an annuity right for me?

Just because rates are high at the moment and represent good value, that doesn’t necessarily mean an annuity is the right retirement strategy for you.

Using your pension pot to buy an annuity is an irreversible decision, so you need to think carefully before making your mind up and should seek financial advice if you are unsure. You can find an independent adviser at Unbiased or VouchedFor.

According to the ABI, more annuity purchases occurred after taking financial advice in 2024, with 36% of buyers taking advice beforehand compared to 29% in 2023.

Some people may prefer to keep their pension pot in drawdown. This is when you keep part of your pot invested (where it will hopefully continue to grow), while withdrawing cash flexibly as and when you need it.

We look at how to find the best pension drawdown provider in a separate guide.

FCA data shows that pensions drawdown is the most popular option among retirees. Almost 280,000 people opted for drawdown in 2023/24, versus about 82,000 annuity purchases.

However, as previously mentioned, this could change as pension pots become liable for inheritance tax. Experts predict that savers may stop preserving their pensions to pass on to beneficiaries tax-free, and instead look at buying a guaranteed income with their pension.

Swapping a pension for an annuity means you get rid of your pension, reducing the size of your estate and any potential inheritance tax bill.

Stephen Lowe at the retirement firm Just Group notes: “I think in today’s environment many people are seeing current annuity rates as sufficient to meet their retirement objectives and a good time to lock in. Along with other sources of guaranteed income such as the state pension, it provides peace of mind that there will always be an ongoing income to cover day-to-day bills.”

A potential downside with annuities is that, unless you choose a joint-life annuity, when you die, the income dies with you. So, if you only live a few years after you purchase the product, you won't have received much money from your pension.

Some people may prefer to do a combination of the two approaches. You could use part of your pot to buy a guaranteed income, while leaving the rest invested so that you can draw on it as and when you need.

There are different types of annuities on the market. Some are linked to inflation, while others pay a fixed amount each year.

Joint-life annuities continue to pay an income to a beneficiary (such as a spouse or civil partner) after you die, while others do not.

You can buy an annuity at any time in retirement, so you could leave it until you are older – especially as the older you are, the higher the annual income.

Purchasing an annuity earlier in retirement typically results in higher overall total income. However, annuity rates tend to increase with age, meaning those who choose to buy an annuity later in retirement are likely to benefit from better rates.

Clare Moffat, pensions expert at Royal London, comments: “The most suitable option will depend on an individual’s needs and while annuities aren’t for everyone, there are scenarios where they could be beneficial, so they should be considered as part of the retirement planning process.

“Many want complete flexibility with their retirement income, which explains the popularity of drawdown, while for others, buying an annuity offers them the comfort of a guaranteed income. For those people initially opting for income drawdown, that may not be the final decision. As people get older, some are keen to introduce a form of guarantee, so a happy medium for many is an annuity to cover basic living costs, providing comfort and reassurance, while leaving the rest invested for extra flexibility.”

Shopping around for an annuity

As well as considering what type of annuity is right for you (if any), you should do your homework to ensure you get the best rate.

“Different providers offer different rates and not searching the market can leave you thousands of pounds worse off over the course of your retirement,” Morrissey says.

Almost a third of retirees fail to shop around for the best annuity deal, instead sticking with their pension provider, according to the ABI figures.

Using a comparison site is a good starting point, Morrissey adds, but reminds retirees that there’s more to consider than the annual income alone.

“Single-life annuities offer higher incomes than joint-life ones but the joint-life one will offer an income to your spouse should you die first,” she points out.

Similarly, an inflation-linked annuity will generally offer a lower starting income than a level annuity, but if you live long enough, you might end up getting more from the inflation-linked product.

Finally, Morrissey recommends giving all of your health details – including whether you smoke or drink – as this information feeds into the insurer’s calculations and can result in you getting an enhanced annuity, which pays a higher rate of income.