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Annuities, and when a guaranteed income is the right answer

An annuity buys an income you cannot outlive. The decision that matters most is not whether to buy one, but where you buy it and what shape you choose.

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The short answer

An annuity converts a pension pot into an income paid for the rest of your life. Rates vary widely between insurers, so moving the pot on the open market can raise the income. Declaring health conditions raises it further.

For lifeIncome that cannot run out
Over 20%Typical gap between best and worst rates
25%Tax-free cash, taken before you buy
30 daysTypical window to change your mind
What is on this page
  1. What an annuity does
  2. Shopping around is the biggest single decision
  3. Tell them about your health
  4. The options that change the price
  5. The joint life mistake
  6. When an annuity beats drawdown
  7. Tax and the tax-free cash
  8. How to buy one properly

What an annuity does

You hand a pension pot to an insurer. In return they pay you an income for the rest of your life. It does not stop if you live to 100, and it does not fall if markets do.

That is the whole product. Everything else is options bolted onto it.

Annuities got a bad name when rates were low and the rules forced people to buy one. Neither is true now. They are a tool, and for some people they are the right one.

Shopping around is the biggest single decision

Your pension provider will offer you an annuity. You do not have to take it. You can move the pot to any insurer, and the difference between the best and worst rate can be large.

This is called the open market option. Taking it is free. Not taking it can cost tens of thousands of pounds over a retirement.

Tell them about your health

An enhanced annuity pays more if your life expectancy is shorter. Insurers ask because a shorter payment period lets them pay a higher rate.

  • Smoking, now or in the past
  • High blood pressure or high cholesterol
  • Diabetes, heart conditions or a stroke
  • Cancer history
  • Being significantly over or under a healthy weight
  • Certain occupations and even some postcodes

People underclaim here constantly. They think a controlled condition does not count. It often does, and it can lift the income by a double-digit percentage.

The options that change the price

Option What it does What it costs you
Single life Pays you, stops when you die Nothing, this is the base
Joint life Keeps paying a partner after you die A lower starting income
Guarantee period Pays for a set number of years even if you die A small reduction
Value protection Returns unused capital to your estate A larger reduction
Escalating Income rises each year, often 3% or with inflation A much lower starting income
Level Income never changes Nothing now, a lot later

Each option is priced by the insurer. There is no free choice here; more certainty always means less income at the start.

The level versus escalating choice catches people. A level annuity looks generous at 65. After 20 years of inflation at 3% a year it can buy about 55% of what it did.

Been offered an annuity by your own provider?

Before you sign it, get someone to check the shape and compare the market. It is usually the single most valuable hour of the process.

Ask us a question

Prefer WhatsApp? Message us there. We are open Monday to Saturday, 9am to 8pm.

This goes to a separately authorised firm we have vetted. The introduction costs you nothing. If you go ahead, we may be paid a fee by that firm.

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The joint life mistake

A single life annuity pays more. That is why people pick it. Then the higher earner dies first and the survivor is left with the State Pension.

Ask a direct question before you choose. If you died next year, could the person you live with pay the bills? If the answer is no, a joint life annuity is doing a job.

Life cover can do part of that job too, and it is one of the things we advise on and arrange ourselves. See life insurance if that is the gap.

When an annuity beats drawdown

You need a floorIf the pension has to cover the mortgage, rent or council tax, guaranteed income does a job no invested pot can do.
You will not review itDrawdown needs looking at every year. If that will not happen, an annuity is the safer answer.
Your health is poorEnhanced rates can make an annuity pay far more than a standard one. Poor health is the one time an annuity gets cheaper.
You want the worry goneSome people sleep better with a fixed number. That is a legitimate reason and should not be argued out of them.

The opposite case is on our drawdown page. Most people are somewhere in between and use both.

Tax and the tax-free cash

You can normally take 25% of the pot tax free before you buy the annuity. The income the annuity pays is then taxed as normal income.

Take the tax-free cash first if you want it. You cannot go back for it once the annuity is bought. That is a one-way door.

The income counts towards your total for the year. Combined with the State Pension it can push you into a higher band. Work the whole figure out before you set the income level.

How to buy one properly

1

Get your pot values

Ask every provider for a current value and any guarantees.

2

Check for guaranteed rates

Some older policies have guaranteed annuity rates far above today's market. Never give one up by accident.

3

Decide the shape

Single or joint, level or rising, guarantee period. Decide this before you compare prices.

4

Disclose everything medical

Every condition, every medication, and be honest about smoking. It raises the income.

5

Compare the whole market

Use the open market option. Do not accept your own provider's offer without comparing it.

An older couple walking together in the countryside

Who this suits, and who it does not

An annuity earns its place if
  • You need income you cannot outlive
  • The pension has to cover fixed bills
  • You have a health condition that lifts the rate
  • You would rather never think about it again
Look elsewhere if
  • You want to leave the pot to your children
  • Your income needs will change a lot year to year
  • You already have generous guaranteed income
  • The pot is small enough that flexibility matters more

Check broadband before you make an offer

Broadband speeds can vary street by street, so check the exact address before you commit. Ofcom's free checker shows which broadband speeds and mobile coverage are available at any UK property.

Check broadband at an address (Ofcom)

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We can introduce you to a specialist who can combine your mobile, broadband and utilities into one bill. There's no fee for the introduction.

We don't provide these services ourselves. Switching household bills is not a regulated financial service, so FCA protections and the Financial Ombudsman do not apply. We'll only pass your details to the specialist if you ask us to. See our privacy notice.

Questions people actually ask

Are annuity rates good at the moment?
Rates move with long-term interest rates and improved a great deal after 2022. Whether the rate is good for you depends on your age, health and the shape you pick. Compare live quotes rather than relying on an article.
Can I change my mind after buying an annuity?
Usually there is a short cancellation window of around 30 days. After that it is permanent. That is why the shape of the annuity is worth more thought than the price.
What is an enhanced annuity?
One that pays a higher income because a health or lifestyle factor shortens your expected life. Smoking, diabetes, heart conditions and being overweight can all qualify. You have to disclose them to benefit.
Should I pick level or increasing income?
Level pays more now and buys less later. Increasing pays less now and holds its value. Over a 25 year retirement inflation does real damage, so a level annuity should be a deliberate decision rather than a default.
What happens to an annuity when I die?
With a single life annuity, payments stop. With a joint life annuity a set percentage continues to your partner. A guarantee period keeps payments running for a fixed term either way.
Can I buy an annuity with only part of my pension?
Yes. Buying an annuity with enough to cover fixed bills and leaving the rest invested is a common approach. You do not have to choose one route for the whole pot.
Do I have to buy an annuity at all?
No. That requirement was removed in 2015. You can use drawdown, take lump sums, buy an annuity, or mix them.
How much income would my pot buy?
It depends on age, health, the options you pick and the rates on the day. Get real quotes rather than relying on a rule of thumb, because the spread between insurers is wide.
How do I check broadband speed at a property?
Use Ofcom's free broadband and mobile checker at checker.ofcom.org.uk. Enter the property's postcode and choose the address to see which broadband speeds and mobile coverage are available before you make an offer.

Where to go next

Pension drawdown explainedThe flexible alternative, and its risks.State Pension explainedThe guaranteed income you already have.Tax-free cash explainedTake it before you buy, not after.How much do you need to retire?Three budgets and what they actually cost.Life insuranceCover we advise on and arrange ourselves.Combining old pensionsWorth doing before you buy an annuity.
Where these figures come from

Figures checked on 1 September 2026 and correct for the 2026/27 tax year. Rates change, so check the source before you act on a number.

Pension advice goes to a separately authorised firm we have vetted. The introduction costs you nothing. If you go ahead, we may be paid a fee by that firm.

Last reviewed September 2026.

Talk it through before you make a permanent decision

An annuity is one of the few money choices you cannot reverse. Worth an hour of someone's time first.

Start a conversation

Prefer WhatsApp? Message us there. We are open Monday to Saturday, 9am to 8pm.

This goes to a separately authorised firm we have vetted. The introduction costs you nothing. If you go ahead, we may be paid a fee by that firm.