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.
Annuity rates continue to rise, potentially offering pension savers a higher guaranteed income in retirement – but there are considerations if you’re thinking of buying one.
Annuity rates for a healthy 65-year-old with a £100,000 pot not including a guarantee have surged to over 8%, as of 27 August, according to investment platform Hargreaves Lansdown. Someone with £100,000 would get £8,077 a year, based on current rates.
Increases in gilt yields, driven by renewed conflict between the US and Iran in the Middle East and unease over a change in UK prime minister, have led to annuity rates rising.
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Insurance companies and financial firms selling annuities tend to cover their costs by buying government bonds, so any change in the yield on these gilts is typically reflected in annuity rates.
Andrew King, pension technical specialist at wealth management firm Evelyn Partners, said: “Annuities are definitely back on the radar of many retirees as annuity rates were at their highest levels for more than 10 years, even before this latest spike in bond yields.
King added: “Annuity rates could go higher from here if bond yields remain close to or above their current levels as insurers continue to reprice annuity products.”
However, just because annuity rates are high, that doesn’t mean they’re right for everyone.
What are annuities and what is their appeal?
An annuity is an insurance product that delivers a regular, guaranteed income in exchange for some or all of a pension pot. Annuity rates determine how much annual income you get in exchange for your money.
Pension freedoms came into force in 2015, giving savers much more flexibility over how they could access their retirement pots, and with interest rates low at that time, many opted for pension drawdown.
But with interest rates and consequently annuity rates on the rise in recent years, the appetite for the insurance product has returned.
Meanwhile, from April 2027, when most unused pension pots will be liable for inheritance tax (IHT), savers have extra reason to buy annuities – buying one takes capital out of your estate and can lower an eventual IHT bill.
Data from the Association of British Insurers (ABI) reveals 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.
There are different types of annuity, and it’s worth considering what type you want before buying.
For example, you may want one that’s inflation-linked – these can offer better value if you expect to live longer.
You also need to decide how long you want the annuity to pay out – a lifetime annuity, for example, provides a guaranteed income for the remainder of your life.
You can also get fixed-term annuities which pay out for a set period, usually between five to 10 years. These can be useful if you want an income to live on before reaching state pension age.
Is an annuity right for you?
Just because rates are high at the moment and represent good value, that doesn’t mean an annuity is the right retirement strategy for you.
Buying an annuity is an irreversible decision, so you need to think carefully before deciding on one and should seek financial advice if you are unsure.
Some people prefer to keep their pension pot in drawdown as that offers more flexibility, while others combine an annuity with drawdown.
Clare Moffat, pension expert at Royal London, said: “The key point is that the most suitable retirement income option will depend on an individual’s needs. And that can be different at different stages.”
In any case, looking at multiple deals on the market is crucial if you want to secure the best rate.
Moffat explained: “Shopping around is essential as rates can vary significantly between providers, especially if you have any kind of health conditions, as that could improve the amount you can receive in annuity income.”
There are a number of annuity search engines to choose from including one from MyPensionExpert and Annuity Ready.
