Annuities in 2026: Rates Are Near a 17-Year High — Here's How to Decide If One Is Right for You

An annuity converts your pension pot into a guaranteed income for life. You hand over a lump sum to an insurance company, and they pay you a fixed amount every month until you die. Think of it as the opposite of life insurance — you're betting you'll live a long time, and the insurer is betting you won't.

You can take up to 25% of your pension as a tax-free lump sum before buying the annuity. So a £133,333 total pot gives you £33,333 tax-free cash and £100,000 to annuitise.

The income you receive depends on your age, health, the options you choose, and crucially, gilt yields at the time of purchase. Annuity providers invest your money primarily in government bonds — so when gilt yields are high (as they are now at 5.04%), annuity rates are generous. When yields were at their 0.16% low in March 2020, annuities paid almost nothing.

For a complete picture of your retirement options, our pensions hub covers the full range of choices beyond annuities.

Based on a £100,000 purchase price (after taking the 25% tax-free lump sum from a £133,333 fund), here's what the market offers according to Sharing Pensions data from 9 March 2026:

Single life, level income:

• Age 55: £6,571/year
• Age 60: £6,836/year
• Age 65: £7,748/year
• Age 70: £8,357/year
• Age 75: £9,386/year

Joint life (100% to spouse), level income:

• Age 65: £6,719/year
• Age 70: £7,176/year
• Age 75: £7,831/year

These rates are 50-70% higher than they were in December 2021. A 65-year-old who deferred buying an annuity in 2021 would have received roughly £5,000/year — today they'd get £7,748. That's an extra £2,748 per year, every year, for life.

The 10-year guarantee option (your estate receives payments for at least 10 years even if you die sooner) costs relatively little — reducing a 65-year-old's income from £7,748 to £7,557, a difference of just £191/year for significant peace of mind.

Annuities work best when three conditions are met:

1. You want certainty. If the idea of your pension income fluctuating with stock markets keeps you awake, an annuity removes that worry permanently. The amount is fixed. It arrives every month. You cannot outlive it.

2. You're in your mid-60s or older. The older you are when you buy, the higher the annual rate — because the insurer expects to pay out for fewer years. At 55, you'd get £6,571/year per £100k. At 75, you'd get £9,386. Buying too early locks in a lower rate.

3. You have a partner who depends on your pension. Joint-life annuities continue paying 50% or 100% of the income to your surviving spouse after you die. At age 65, a 100% joint-life annuity pays £6,719/year — less than the single-life rate, but your partner is protected.

Annuities also suit people with defined benefit pension shortfalls, those without other guaranteed income beyond the state pension (currently £11,502/year full new state pension), and anyone who finds drawdown management stressful or complicated.

Drawdown keeps your pension invested and lets you withdraw income flexibly. It wins when:

You're younger than 60. Locking in an annuity at 55 means a lower rate AND losing 30+ years of potential investment growth. If you're still working and don't need the income yet, drawdown lets your pot keep growing.

You have other guaranteed income. If your state pension plus any defined benefit pensions cover your essential expenses, you can afford to take investment risk with the rest. Drawdown lets you aim for higher returns — the FTSE All-Share has averaged 7-8% annually over 20-year periods.

You want to leave an inheritance. An annuity dies with you (or your spouse, if joint-life). Drawdown funds pass to your beneficiaries. Check our ISA guide for how ISAs compare as inheritance-friendly wrappers. Under current rules, pension pots are outside inheritance tax — though this changes from April 2027 when pension inheritance tax takes effect.

You're healthy and expect to live long. Counterintuitively, if you're likely to live well into your 90s, drawdown may produce more total income than an annuity — because your investments have decades to compound. The annuity calculation favours the insurer's actuarial assumptions about your lifespan.

You don't have to choose one or the other. The smartest approach for many retirees is to annuitise enough to cover essential expenses and keep the rest in drawdown.

Example: Your essential costs (bills, food, council tax) are £18,000/year. The state pension provides £11,502. You need £6,498 more in guaranteed income. At age 65, that requires roughly £84,000 in annuity purchase price. If your total pot is £200,000, you annuitise £84,000 and keep £116,000 in drawdown for discretionary spending, holidays, and legacy.

This hybrid approach gives you:

• A floor of guaranteed income that never runs out
• Flexibility and growth potential from the invested portion
• An inheritance from the drawdown pot
• Peace of mind that your essential costs are covered regardless of market conditions

Our savings hub covers how to structure the cash buffer within your drawdown to avoid selling investments during market dips.

Related reading: tax planning guide, gilts guide.

15-year gilt yields peaked at 5.29% in April 2025 and currently sit at 5.04%. The Bank of England has cut the base rate to 3.75% and markets expect further reductions. If gilt yields fall toward 4% over the next 18 months, annuity rates will drop significantly — potentially 10-15% from current levels.

That doesn't mean you should rush. An annuity is irreversible — once you buy, there's no getting your money back. But if you're already planning to retire in the next 12 months and you want guaranteed income, current rates are objectively excellent by historical standards.

The conflict in the Middle East has pushed gilt yields up recently (from 4.65% to 5.04% in early March), creating a temporary tailwind for annuity buyers. Whether this persists depends on geopolitical developments no one can predict.

Get quotes from multiple providers — rates vary significantly. Enhanced annuities for smokers or those with health conditions can pay 20-40% more than standard rates. The open market option means you're never obliged to buy from your existing pension provider.

This article is for informational purposes only and does not constitute financial advice. You should seek independent financial advice before making any investment decisions.

For further detail, refer to the gov.uk pensions overview.