How to Find the Best Annuity Rates in the UK
If you’re approaching retirement and want a guaranteed income, an annuity might be worth considering. But finding the right annuity and getting the best annuity rates in the UK isn’t always easy.
This guide will walk you through everything you need to know — so you can make an informed decision, get the most from your pension pot and feel more confident about your retirement income.
What Is an Annuity?
An annuity is a financial product that converts your pension savings into a regular income for a set period — often for the rest of your life. Once it starts, your annuity income is paid monthly, quarterly or annually.
For many people it’s a comfort: a fixed amount that doesn’t rely on the stock market or investment performance.
The Annuity Market
The annuity market in the UK has changed in recent years and there’s more choice and flexibility. More competition among annuity providers has helped improve options especially for those who take the time to compare. Interest rates, gilt yields and economic conditions all impact what pension annuity rates are available at any given time.
Types of Annuity to Consider
Understanding the main types will help you make the right choice for you.
1. Lifetime Annuity
Guaranteed income for life. You can choose a level annuity where your income stays the same each year or an increasing annuity which rises over time to help with inflation.
2. Joint Life Annuity
Pays out until both you and your partner pass away. Joint life annuity rates are lower than single life annuity rates but offer added financial protection for couples.
3. Enhanced Annuity
If you have health issues, a shorter life expectancy or certain lifestyle factors (like smoking) you may qualify for an enhanced annuity. These offer a higher income than standard options, often thousands more a year in retirement.
How are Annuity Rates Calculated?
Your annuity rate depends on several personal and economic factors including:
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Age and health
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Size of your pension fund
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Type of annuity chosen (e.g. single, joint, fixed, escalating)
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Current interest rates
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Your postcode and lifestyle
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Gilt yields and the wider annuity market
Even small differences in your actual rate can add up to thousands of pounds over the course of your retirement. That’s why it’s important to compare annuity quotes from different UK providers.
Getting the Most from Your Pension
Before you buy an annuity consider how much of your pension pot you want to use. You can usually take up to 25% as a tax-free lump sum, with the rest used to provide a guaranteed annuity rate.
Key points to think about:
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Your retirement needs – will the income cover both essentials and lifestyle choices?
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Whether to choose level income or one that increases with inflation
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Whether to provide a continuing income for a spouse or partner
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Including a guaranteed period or death benefits for loved ones
Real-Life Example Scenarios
Example 1 – Single Life Annuity
Sandra, 65, has a £120,000 pension pot. She takes £30,000 as a tax-free lump sum and uses the remaining £90,000 to buy a single-life, level annuity. She gets £5,400 a year — for life.
Example 2 – Joint Life Annuity
Malcolm, 68, has a history of heart disease and smokes. He chooses a joint life annuity with his wife as the second beneficiary. Because of his circumstances he qualifies for an enhanced annuity that pays £7,800 a year. If he dies first his wife will get 50% of the income.
Quick Checklist: What Annuity to Choose
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Have you taken your tax-free lump sum?
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Do you need income for you or for a partner too?
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Are you in good health or might you qualify for an enhanced annuity?
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Do you want your annual income to increase over time?
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Are death benefits important to you?
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Have you compared pension annuity rates from different providers?
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Are you happy with a fixed income or would you like more flexibility?
Jargon Buster: What it all means
Gilt yields – UK government bond rates that affect annuity prices
Escalation – An increase in your annuity income each year (e.g. 3% or inflation-linked)
Guaranteed period – A minimum term your annuity will pay, even if you die early
Spouse’s pension – Income paid to a partner when you die
Enhanced annuity – Higher income because of health or lifestyle factors
Pension annuity – The income product you buy with your pension pot
Common Questions, Answered
What happens to my annuity when I die?
If you chose a joint life annuity or added a guaranteed period, income may continue to your spouse or estate. If not, payments stop.
Can I change my annuity once it’s set up?
No. Annuities are usually fixed contracts, so it’s important to choose the right features from the start.
Do I pay tax on annuity income?
Yes, annuity payments are treated as regular income and taxed according to your personal tax band.
Is a drawdown better than an annuity?
Not necessarily. An annuity gives stability, while drawdown offers flexibility (and risk). Many people use a mix of both to balance security and control.
What to Do Next
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Review your pension savings to understand your options.
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Use an annuity calculator to estimate your annual income.
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Compare quotes from a range of annuity providers — don’t settle for the first offer.
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Speak to a regulated financial adviser to get tailored advice.
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Think about your future needs — including inflation, partner protection, and healthcare costs.
If you’re looking for a simple way to check your options, Pension Potential offers free, no-obligation annuity quotes from leading UK providers.
Please Note
This guide is accurate as of April 2025. However, annuity rates, interest rates, and market conditions can change frequently. The figures and examples provided are for general guidance only.
Before making any financial decisions, it’s a good idea to:
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Check the latest annuity rates using a reliable comparison tool
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Speak to a regulated financial adviser for personalised advice
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Review your own circumstances, including tax position and retirement goals
Taking these steps will help ensure you get the best value and peace of mind from your annuity.