Guide to Annuities
UK Pensions

Annuity Rates

Annuity rates are set by insurance companies selling annuities, in the same way Banks offer different savings rates. Annuity rates are reviewed frequently and go up and down making it difficult to determine when it's a good time to buy an annuity. An annuity rate is what is used to convert a pension fund or lump sum into an annuity, for example:

Value of fund x Annuity rate = Annuity

The actual amount of income obtained from an annuity is dependent on several factors including the size of the fund used to buy the annuity, the annuity rate used and the type of annuity purchased. 

With pension annuities, the annuity is either purchased on your behalf by your pension provider or you can take what's called an open market option (OMO) which involves searching the market place for the best annuity rate. A pension provider that has been investing a fund on your behalf may not always be in a position to offer the best annuity rates. Some types of pensions don't qualify for an open market option but if yours does, taking advantage of the open market option can increase your annuity income by as much as 15% to 30%. However, your pension may include a guaranteed annuity rate (GAR) which may be better than current open market rates so always check this first.

If you have a pension fund of less than £10,000, you may be limited by the number of annuity providers who will accept your fund.

Because some annuity rates can be linked to inflation, your annuity payments might be reduced if inflation falls below zero, unless you take out a guarantee against negative inflation at the start. This guarantee has a cost and can reduce your starting level of income.

Buying an annuity policy is a financial commitment which can't be altered once you have entered into an annuity contract. Getting the right annuity for your needs is very important so wherever possible take the advice of an Independent Financial Adviser.

Always ask for a Key Features document from annuity providers or from your financial adviser, these documents will provide important information about the annuity including:

  • The annuity rate
  • The type of annuity being offered, i.e. a fixed term or lifetime annuity
  • How and when you will receive the annuity income
  • Annuity charges
  • What any dependents may get if you die

You can take advantage of independent online comparison sites that compare annuity rates from different providers. It's important to take your time to compare as many providers as possible to make sure you understand what's available. We've included some links below to respected independent comparison sites to help start your research: - Best annuity rates from some of the leading UK annuity providers. Specialist quote facility if you have ill health and qualify for higher annuity rates. - Find and compare the best annuities. - Compare types of annuities: Life Annuities, Pension Annuities, Retirement Annuities and Fixed Annuities.

PDF Guide to Annuities Download the Annuities PDF Guide here - see our other free PDF guides here

Guide Contents

What is an Annuity?
When might I need an annuity policy?
Types of Annuities
Pension annuities
Annuity income options
Enhanced and Lifestyle annuities
Impaired Life Annuities
Annuity rates
Where can I go to get more help?

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