Best annuity rates May 2025

What is an annuity rate?

Buying an annuity involves converting your retirement savings into a guaranteed income. 

Annuity rates determine how much income you'll get. For example, if you have a pension pot of £100,000 and the annuity rate is 7%, you'll get an annual income of £7,000.

Here we explain what influences annuity rates and how to get the most from an annuity.

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Best annuity rates compared

Rising interest rates over the past few years have helped to boost the amount you can get from an annuity.

The table below gives an idea of how much a healthy 65-year-old with a £100,000 pot could get for three different types of annuity: 

• a single-life annuity
• a joint-life annuity (where the survivng partner receives 50% of the original payments)
• a joint-life annuity where payments rise by 3% each year

How much annuity income will £100,000 buy?

The income you get depends on the rate you're offered by the annuity provider and the amount you're converting into an annuity.

For example, if you have £100,000 in your pension pot and are offered an annuity rate of 7%, you'll get an annual income of around £7,000 a year. 

The rates in the table above show that a healthy 65-year-old can get an annual income of nearly £7,800 in return for £100,000. 

You'll generally find that the older you are when you arrange an annuity, the higher the annuity rate you'll get, reflecting the fact that the annuity provider won't have to pay out for as long. 

You'll also be offered a higher rate if you have a serious health condition, for the same reason. 

How are annuity rates calculated?

The broader economic picture will determine overall trends in annuity rates, but exactly how much income you get will depend on your personal circumstances.

Gilt yields

Annuity providers typically fund annuities using returns from government bonds (known as gilts), which are among the safest types of investment. 

The government pays the annuity provider a fixed amount of interest, which is tied to the Bank of England base rate. 

When the base rate is higher, the rates of interest (or yield) offered by gilts also go up. This in turn pushes up annuity rates, as we've seen happen over the past couple of years.

The value of your pension

The size of your pension pot will be the main determining factor of how much income you'll get from an annuity. 

The more pension savings you use to buy an annuity, the more income you'll get. 

Age and life expectancy

Life expectancy is key to the annuity rate you are offered. 

The longer you're expected to live, the lower your rate, because the provider will be paying you for longer. For this reason, a 60-year-old will generally receive a lower income than a 70-year-old.

Your health

If you're in poor health, smoke or are overweight, you'll be expected to live for a shorter time, so you're likely to get a better annuity rate.

For this reason, it's important to declare any health conditions to your provider.

Your postcode

Annuity providers use your postcode to help calculate life expectancy. If you live in an area with a lower-than-average life expectancy, you may be offered a slightly higher rate.

What are enhanced annuity rates?

With some financial products - travel insurance, for example - you'll usually pay more if you have any health issues.

But with annuities, you can benefit from better rates. That's because you'll have a shorter life expectancy than someone in good health, meaning the annuity provider assumes they won't have to be making payments for as long. 

The more serious the condition, the higher the rate is likely to be. 

When we ran quotes in April 2024 for a 65-year-old with an initial pot of £100,000 looking for a single-life annuity (with no protection or index-linking), we were quoted incomes of between 7% (Scottish Widows) and 15% (Standard Life) more for an enhanced annuity (based on an overweight smoker who is taking medication for high blood pressure and high cholesterol), compared with a standard annuity.

What are guaranteed annuity rates?

If you started your pension in the 1980s or 1990s, ask your provider to confirm whether you have a guaranteed annuity rate written into it.

If you do, you’ll be able to get a much more generous annuity rate compared to what’s on offer from the rest of the market.

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How to get the best annuity for you

Shop around

Don't automatically accept the annuity rate offered by your pension provider without checking what's on offer across the rest of the market.

Consider your loved ones

Single-life level annuities - which pay out the same income every year and then will stop paying out when you die - tend to offer the highest rates, because annuity companies know they only have a set amount to pay out for the lifetime of one person.

But this means your partner won't get anything if you die before them. Joint-life annuities offer lower incomes than single-life annuities, but will keep paying out to your partner if you die first. 

Declare any health conditions

It's important to fully disclose details about your health and lifestyle, as you may qualify for an enhanced annuity rate - giving you a higher income - if any of these factors negatively affect your life expectancy. 

Consider inflation

Opting for an annuity that pays a fixed amount every year means that over time you'll find your income doesn't stretch as far because it isn't rising in line with inflation. 

Inflation-linked annuities ensure that your payments increase each year, but you'll need to weigh up whether you're willing to accept the lower starting income they offer. 

It could take you a decade before this income matches what you would have received at the beginning from a level annuity, and many more years before you've received more income overall.