Annuity rates rise – is now a good time to buy one?
Annuities can offer peace of mind in retirement. Higher rates are making them even more attractive.
Pensions savers looking to take out an annuity could benefit from higher rates – but is it worth buying one now?
Annuity rates for a healthy 65-year-old with a £100,000 pot hit an 18-year high of 7.75% in July 2026, up from 7.66% in April, according to Standard Life’s Annuity Rate Tracker.
This means someone with a £100,000 pot would get £7,750 a year.
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If you're nearing retirement or are retired, buying an annuity may be a consideration. However, in reality what you should do is dependent on a variety of factors and your personal preferences.
Graham Nicoll, financial planner at NCL Wealth Partners, said: “Rising annuity rates are welcome, but don't let short-term market movements drive a lifelong decision.
“The bigger question is whether certainty or flexibility matters more. For some clients, particularly those wanting guaranteed income to cover essential expenditure…higher rates make annuities more compelling.
“But once you buy one, you've effectively handed that capital to the insurer. You lose flexibility, access to the lump sum and, in most cases, the ability to adapt if your circumstances change.”
Insurance companies and financial firms selling annuities tend to cover their costs by buying government bonds, so any change in the yield on these bonds, also known as gilts, is typically reflected in annuity rates.
Long-term gilt yields have risen since the start of the year due to the expected impact of the war in the Middle East.
A change in the UK prime minister has also increased uncertainty, pushing up annuity rates.
What are annuities and what is their appeal?
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 get in exchange for your pot.
A big reason behind the appeal is the fact that annuity rates are so much higher than they were a few years ago, when interest rates were lower.
Income from an annuity is guaranteed for life, so it provides security and peace of mind that the insurer will keep paying the money regardless of how long you live. Some annuity payouts increase each year, helping reduce the inflation risk, while others pay an income to a spouse on death, adding to their appeal.
Annuities have also become more popular since 2024’s Autumn Budget announcement that unused pension pots will be liable for inheritance tax (IHT) from April 2027.
Currently, many people use pension drawdown – keeping part of your pot invested, so it keeps growing, and taking out what cash you need – rather than annuities as anything left over could be passed on to the next generation.
Under the new rules, though, leftover pension pots will be liable to IHT. However, if you buy an annuity, the capital is taken out of your estate and could lower an eventual IHT bill.
This is reflected in the data. The Association of British Insurers (ABI) revealed the total value of premiums paid into individual pension annuities grew 4% to £7.4 billion in 2025, the highest annual level since pension freedoms were announced in 2014.
Is an annuity right for you?
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.
Some people may prefer to keep their pension pot in drawdown as that offers more flexibility.
Annuity rates tend to rise the older you are as the insurer has to pay out for less time, so it can be worth waiting to take one out.
It’s important to do your homework to ensure you get the best rate.
Helen Morrissey, head of retirement analysis at investment firm Hargreaves Lansdown, said: “Different providers offer different rates, so if you accept the first quote offered, you might not be getting the best income. Once bought, an annuity can’t be unwound, so you could be left to regret a hasty decision for a long time to come.
“Taking the time to use an annuity search engine to get quotes from across the market is a step closer to making the right choice.”
There are a number of annuity search engines to choose from including one from MyPensionExpert and Annuity Ready.
