Annuity Rates 2026 — Are They Good?

If the word "annuity" still conjures memories of rock-bottom rates and disappointed retirees, it's worth updating that impression: annuity rates have improved substantially since 2022, and for many people approaching retirement today they represent noticeably better value than they did for most of the 2010s. This page explains why rates fell so far out of favour in the first place, why they've bounced back so strongly, roughly what a healthy 65-year-old might be offered today, and why shopping around and considering an enhanced annuity can make an even bigger difference than the general market recovery on its own. If you last looked at annuities years ago and came away unimpressed, it's genuinely worth taking a fresh look at where the market stands now, because the numbers have moved a long way in savers' favour.

Why annuity rates fell out of favour in the 2010s

Annuity providers are, at heart, insurance companies that promise to pay you an income for life, and they back that promise largely by investing in government bonds (gilts) and high-quality corporate bonds. When the interest rates on those bonds fall, so does the income an insurer can afford to promise you for a given lump sum. Through most of the 2010s, the Bank of England base rate sat at historic lows, often below 1%, and gilt yields fell correspondingly. The result was a long, painful period in which annuity rates were widely seen as poor value: a 65-year-old with a £100,000 pot might have been offered an income of only around £4,500 to £5,000 a year, a much smaller proportion of their pot than earlier generations of retirees had enjoyed. This period coincided with the introduction of pension freedoms in 2015, which gave savers the right to access drawdown instead of being effectively forced into an annuity, and unsurprisingly a great many people chose flexibility over a product that, at the time, looked expensive and inflexible.

Why rates have recovered strongly since 2022

The picture changed sharply from 2022 onwards. As central banks around the world, including the Bank of England, raised interest rates to combat inflation, gilt yields rose in tandem, and annuity rates followed almost immediately, because the mechanism runs directly from bond yields to the income insurers can offer. The improvement wasn't a small tweak; it was one of the largest and fastest recoveries in annuity rates in decades, effectively reversing much of the decline that had built up over the previous ten years. Someone who might have been offered under £5,000 a year for a £100,000 pot in 2021 could, by the mid-2020s, be looking at figures considerably higher for exactly the same pot, purely because the interest rate backdrop had shifted. This is genuinely good news for a large group of people: anyone who dismissed annuities as poor value based on outdated information from the 2010s is likely working from a picture that no longer reflects today's market.

What rates look like today for a healthy 65-year-old

As a broad, illustrative guide only, a healthy 65-year-old buying a single life, level annuity with no guarantee period might currently see rates in the region of 7% of their pot per year, though this figure moves with the gilt market and varies by provider, so it should never be treated as a quote. It is simply a rough sense of where the market sits today, useful for getting a general feel for what an annuity might deliver before you get an actual, personalised quote. Adding features such as a joint life option, an increasing income, or a guarantee period will all reduce the starting income somewhat, in exchange for the extra protection they provide, as covered on our "what is an annuity" page. The single biggest variables affecting your own personal rate are your age at purchase (older buyers get higher rates), your health and lifestyle (see our enhanced annuities page), and the specific features you choose.

Illustrative annual income by pot size

The table below shows broadly illustrative annual income figures for a healthy 65-year-old buying a single life, level annuity with no guarantee period, at an approximate current rate of around 7%. These figures are for illustration only, are not a quote, and will vary by provider, health, and the exact features chosen.

How age changes the rate

Annuity rates are heavily age-driven, because the insurer is essentially pricing how many years it statistically expects to pay you. Someone buying at 75 will typically be offered a noticeably higher rate than someone buying the exact same product at 65, simply because their expected remaining lifespan is shorter on average. This is one reason some people choose to defer buying an annuity, keeping their pot in drawdown for the earlier years of retirement and switching some or all of it into an annuity later in life, when rates for their age are higher and their appetite for managing investment risk may have reduced. It's a perfectly reasonable strategy, though it does mean accepting investment and longevity risk during the years before you annuitise, since there's no guarantee gilt yields, and therefore future annuity rates, will move in your favour.

Why shopping around matters enormously

Even within today's improved market, the single biggest lever most people can pull to improve their own annuity income has nothing to do with the general economic climate: it's using the open market option to shop around, rather than accepting the first quote from their existing pension provider. The gap between the best and worst quote available for exactly the same person, same pot size, and same features can be substantial, often the difference of hundreds of pounds a year, sometimes more, simply because different insurers price risk differently and compete for business at different times. A regulated broker or adviser who obtains quotes from the whole of the market, rather than a single provider, will typically secure a noticeably better outcome than going direct, and the cost of doing so is almost always outweighed many times over across a retirement that could last twenty or thirty years.

Enhanced annuities can boost the rate significantly further

Separately from the general market recovery, a large group of people are entitled to a meaningfully higher annuity rate than the "standard" figures above, because of their health or lifestyle. This is known as an enhanced or impaired life annuity, and it applies far more widely than most people assume: not just to serious or terminal illness, but to common factors like smoking, high blood pressure, high cholesterol, being overweight, or having a history of conditions such as diabetes or heart problems. Because insurers statistically expect to pay out for a shorter period for someone with one or more of these factors, they're willing to offer a higher income in exchange, sometimes strikingly higher than the standard rate for someone of the same age with no health conditions disclosed. Given how many people qualify without realising it, and how few actually apply, this is one of the most under-used levers in the entire pensions system for boosting retirement income. Our dedicated enhanced annuities page covers exactly who qualifies and how the application process works.

Will rates stay this good?

Nobody can say with certainty where gilt yields, and therefore annuity rates, will move next; they respond to macroeconomic conditions, inflation expectations, and central bank policy that are inherently difficult to predict. What can be said is that today's rates represent a meaningful improvement on the 2010s, and that waiting indefinitely for rates to improve further carries its own risk, since the opposite could just as easily happen. Rather than trying to time the market perfectly, most people are better served by getting an up-to-date, personalised quote when they're actually approaching the point of needing retirement income, comparing it properly across providers, and making a decision based on their own circumstances rather than a guess about where rates will be in a year's time.

A closer look at what drives the rate

It helps to understand exactly what an insurer is doing when it calculates the rate it offers you, because it demystifies why rates move the way they do. The insurer takes your lump sum and invests it, predominantly in long-dated government and corporate bonds whose yields closely match the length of time it expects to be paying you an income. It then uses actuarial life tables, adjusted for your age, sex, and any health or lifestyle information you disclose, to estimate how long it is likely to be paying out for. The rate it offers is essentially the outcome of dividing the expected total payout by your lump sum, spread across your expected lifetime, with a margin built in for the insurer's own costs, profit, and the risk that you live longer than the average. When bond yields rise, the insurer can generate more investment return from the same lump sum, and that extra return gets passed on to you in the form of a higher annual income, which is exactly the mechanism behind the improvement seen since 2022.

The bigger picture: gilt yields and the wider economy

The rise in UK gilt yields since 2022 wasn't an isolated pensions story; it was part of a much broader global shift as central banks moved away from the ultra-low interest rate environment that had persisted since the 2008 financial crisis. Inflation running well above target through 2022 and 2023 prompted the Bank of England to raise its base rate repeatedly, and gilt yields, particularly on the medium and long-dated bonds annuity providers favour, rose substantially as a result. For savers, this has been one of the few genuinely positive side effects of a period that was, in most other respects, difficult, with high inflation squeezing household budgets. Annuity buyers are one of the few groups to have benefited directly and significantly from higher interest rates, which is worth bearing in mind if your own view of annuities was formed during the previous, much less favourable decade.

Common misconceptions worth clearing up

A surprising number of people still hold views about annuities that were true a decade ago but no longer reflect today's market or rules. One common misconception is that buying an annuity is compulsory; since the 2015 pension freedoms, nobody is required to buy one, and drawdown remains a widely used alternative. Another is that annuity rates are permanently poor value, a view that, as this page sets out, is considerably out of date given the recovery since 2022. A third is that annuities only make sense for the very cautious or the very old; in reality, a growing number of retirees choose to buy a partial annuity to cover essential costs while keeping the rest of their pot flexible, a strategy covered on our annuity versus drawdown page. Checking your assumptions against current figures, rather than relying on what was true when annuities were last widely discussed, is well worth doing before ruling the option out.

Getting a personalised quote

Because the figures on this page are necessarily broad and illustrative, the only way to know what you personally would be offered is to request quotes closer to the time you plan to access your pension. This typically involves providing your age, pot size, and the features you're considering (single or joint life, level or increasing, any guarantee period), along with full and honest disclosure of any health conditions or lifestyle factors that might qualify you for an enhanced rate. Getting quotes from several providers, or using a broker who does this on your behalf across the whole of the market, is the single most reliable way to ensure the rate you accept reflects the best available deal for your circumstances, rather than the first number you happen to see.

Annuities alongside the State Pension

It's worth viewing any annuity income in the context of the wider retirement income picture rather than in isolation. The full new State Pension currently pays £230.25 a week, equivalent to just over £11,973 a year, for those with a complete National Insurance record, and this is index-linked and guaranteed regardless of how markets perform. For many retirees, the State Pension already covers a meaningful share of essential outgoings, and an annuity bought with a workplace or personal pension pot can be sized specifically to close the remaining gap, rather than needing to cover the whole of your living costs on its own. Thinking in these terms, how much extra guaranteed income do I actually need on top of the State Pension, often leads to a more useful, and more affordable, annuity decision than trying to annuitise an entire pot without first considering what's already guaranteed elsewhere.