In times of geopolitical volatility, pension annuities take on a whole new appeal. Free from the stress of market dips that can affect retirees on drawdown income, annuities provide a fixed income for life.
Rates are also more competitive than they have been in years. At the end of 2025, the average annuity rate was around 7.5pc for a healthy 65-year-old, according to Standard Life – this is compared to an average rate of 4.71pc in July 2020.
Annuities have grown in popularity as a result. Last year, the Association of British Insurers (ABI) revealed the total value of premiums paid into individual pension annuities rose 4pc in 2025, to £7.4bn.
However, this must be weighed up against the range of other, more flexible ways to withdraw funds – plus, amid the prospect of interest rates falling in future, the income provided from annuities may start to become less appealing.
Here is what you need to know about annuity rates:
Simply put, an annuity rate tells you how much you will get per year from the annuity you buy. For example, if you spent £100,000 on an annuity and the rate was 2pc, you would receive £2,000 a year. If it was 5pc, you would receive £5,000 a year.
Annuities were once the go-to product for retirees before pension freedom rules were introduced in 2015.
From age 55 (rising to 57 in 2028), you can use the value of your pension pot to purchase a fixed income for life from dedicated providers through an annuity. Many people appreciate the financial security this provides, as you’ll know how much you will receive on a regular basis and can therefore plan ahead.
However, it can also be restrictive because once you purchase the annuity, you are stuck with the rate you received. This is unlike pension drawdown, where you can alter how much you withdraw and the rest stays invested.
David Cooper, director of retirement specialist Just Group, said: “An annuity converts retirement savings into a guaranteed stream of regular income that is payable for life, just like a monthly or weekly salary that never stops.
“Retirees can use some or all of a defined contribution pension pot to buy an annuity. The income is not affected by financial market fluctuations, so can enhance financial security in retirement.”
