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Annuity rates

We identify the factors that will determine the rate you’d get on an annuity. This guide explains how annuity rates work.

In this article
What is an annuity rate? Annuity rates compared
How are annuity rates calculated? Should I choose an annuity with the highest rate?

What is an annuity rate?

Annuity rates determine the amount of regular income you will get in return for your pension savings.

They are usually shown as how much money you’ll get per year for every £100,000 you pay in. 

For example, an annuity rate of 5% would mean you’ll get £5,000 for every £100,000 you invest – so if you paid an annuity provider £50,000, you’d get £2,500 a year.

But what influences annuity rates generally? This guide explains how they work. 


Annuity rates compared

To help you figure out how much you could get from an annuity, we've compared the current rates on offer. The rates come from the Money Helper annuity calculator and are correct as of April 2022. 

In our scenario, we've looked at:

  • how much a healthy 65-year-old could get for a single-life annuity with £100,000
  • how much a healthy 65-year-old could get for a joint-life annuity with £100,000. 
  • how much a healthy 65-year-old could get for a joint-life annuity with £100,000 which rises by 3% each year

Single-life annuity £ Joint-life annuity (50% paid out to spouse) £ Joint-life annuity (50% paid out to spouse) plus 3% £
Scottish Widows £5,624 Scottish Widows £5,150 Scottish Widows £3,436
Canada Life £5,449 Canada Life £5,119 Canada Life £3,419
Aviva £5,222 Just £4,719 Just £3,114
Just £5,190 Aviva £4,690 Aviva £2,902
Legal & General £5,141 Legal & General £4,619    


The calculations are for healthy 65-year-olds, living in a CB23 postcode and receiving payment annually in arrears and are to be used as a guide only and may differ from actual quotes you obtain directly from a provider or a financial adviser.

How are annuity rates calculated?

1. Life expectancy

Annuities work like insurance – all the customers’ money is put into a pool and paid out until the term ends (when you die).

They are a guarantee of an income for life, therefore the rates they're based on change as life expectancy varies.

People who live longer get a bigger share, and people who die sooner get a smaller share. This is reflected in annuity rates.

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.

2. Your health

This is linked to your life expectancy. If you’re in poor health, smoke or have another lifestyle condition, you’ll be expected to live for a shorter time, so you’ll get a better annuity rate.

The same applies if the second person in a joint-life annuity or the dependent of an annuitant suffers from ill health or has a medical condition.

Enhanced annuities work on this basis and can secure you up to 30% more income. 

Find out more in our guide to enhanced annuities.

3. Interest rates

The lower interest rates are, the lower annuity rates are.

This is because pensions are partly funded by the interest earned when your money is invested, so you’ll get less for your money when rates are low.

Currently, the base rate is just 0.75%, so annuity payments have been lower than previously.

4. Gilt yields

Annuities are also partly funded by government bonds (known as gilts) which insurers buy.

In return, the government pays the insurers a fixed amount of interest, which is tied to the base rate and inflation. So when the base rate and inflation are low, gilts become more expensive and the rates of interest (or yield) falls. 

Movement in gilt yields will impact the annuity rates on offer. Lower yields result in lower rates and vice versa.

Find out more in our guide to corporate bonds and gilts explained.

Should I choose an annuity with the highest rate?

When researching annuity rates, you'll find that the highest rates are on offer for the most basic of annuities. 

The more useful features you add onto an annuity - such as securing an income for a partner or ensuring your annuity payments rise with inflation - the lower your rate will be. 

For example, a single-life level annuity will pay out the same income every year, without rising to meet inflation, and then will stop paying out when the buyer dies. 

These tend to have the highest rates (not factoring in someone in poor health who could get an enhanced annuity) because annuity companies know they only have a set amount to pay out for the lifetime of one person. 

If you add a guarantee - for example, that if you die within five or 10 years of taking out the annuity, it will pay out to a nominated person - that will slightly reduce your rate, as the annuity provider will have to pay out for as long as the guarantee lasts. 

Your annuity rate will drop further if you get a joint annuity because the annuity will have to pay a proportion of the income you receive to your spouse or civil partner when you die, extending how long the provider has to pay out for. The rate can also be influenced by the age and health of your partner. 

Finally adding an inflation-link to your annuity means that your payments will rise by either inflation or a fixed-percentage each year. These will reduce your rate significantly in your first year because the annuity provider has to increase your payments every year of your life.