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Annuities - pension annuity rates & annuity calculator UK


Concise, no-nonsense guide to getting the best pension annuities, written by the experts. Includes easy, up-to-date annuity calculator.

Annuities guidePension annuity rates in 2012 and over the last few years have been suppressed to low levels due to several compounding factors, including a sluggish economy, volatile financial markets and increasing life expectancies.


This does not mean, however, that you should push back retirement plans in the hope of ‘seeing out’ the current market of lower rates. Indeed, experts believe that the annuities market is unlikely to improve in the medium-term but there are a range of attractive options that you can discuss with an independent financial advisor (IFA), such as investment linked annuities and flexible drawdown plans.

This guide has been compiled by the team at iAnnuityRates.co.uk and is for those who are thinking about their retirement financial planning. It provides a website’s worth of information streamlined into a single page of actionable points for those approaching retirement.

Pension Annuities

Turning your pension(s) into a recurring income

Most retirees will have paid into one or more private pension schemes at some point during their working life. The sum amount of these savings can be describes as their pension pot. A common misconception is the expectation that, upon retirement, your pension will begin providing you with a recurring monthly income. In reality, a pension is nothing more than a tax-efficient mechanism for building savings and investments for retirement. It is not until you purchase either an annuity or flexible drawdown policy that you will begin to receive an income from your pensions.

Don’t forget the 25% tax free lump sum!

From age 55, whether you are retired or not you can withdraw 25% of the value of your pensions as a tax-free lump sum. The remaining 75% can then be used to purchase your annuity.

Types of annuities

There are a whole range of types of annuities but they can all be segmented under two main categories:

  • Conventional/level annuities 
  • Investment-linked annuities

Conventional/level annuities

The option chosen by around 80% of retirees, these give you a secure and fixed income for the rest of your life. The benefit of this is that you are certain of what income you will be receiving and can plan your lifestyle accordingly. The downside is that, should pension annuity rates be low at the time you buy your annuity (which is presently the case) your income may be smaller than it could potentially be.

Investment-linked annuities

Quite simply, your retirement income will be linked to the performance of a portfolio of assets (such as stock options) that your investments are in. As such, your income can increase or decrease over time. This means it is a more risky option than a conventional annuity but can provide a rising retirement income should the investments perform well.

Buying an annuity: three best practices

There are four critically important steps to consider when planning to purchase a pension annuity.

  1. Always speak to an Independent Financial Advisor first
    Independent Financial Advisors (IFA) are trained professionals regulated by the Financial Services Authority (FSA) and are required by law to give unbiased, best advice to their clients. This means they are not tied to any single/group of annuity providers and can compare the entire open market to find your best options. Speaking to an IFA is the most important step to take in the annuity purchasing process.
  2. Do not simply accept your pension provider’s offer
    It is your legal right to compare the entire open market for the best annuities for your own personal situation.
    By shopping around for the best pension annuity rates you can secure a significantly larger income for your retirement. For example, a typical 65 year-old male could expect to receive up to £1,000 per year more income from the best payer compared to the worst – that’s a sizeable £25,000 more if he lives 25 years.
  3. Consider your personal health
    Around 40% of retirees should qualify for an enhanced annuity which will provide a higher level of income per year. To qualify you must have an illness or health condition, such as a history of smoking, diabetes, weight complications or anything else that impedes your health.
    It is worth having a health check to find out if you have any underlying health conditions that you are not aware of as these stating these could qualify you for an enhance annuity.
  4. An annuity purchase is final - you cannot change your mind
    Once you have purchased an annuity, it is final. This is a one-time decision so make sure you follow the previous three steps to ensure you get the most appropriate annuity option for you.

Shopping around for the best pension annuity rates

Shockingly, two-thirds of retirees in the UK fail to exercise their open market option and compare all the available annuity rates and options. Quite simply, many are unaware that they can buy an annuity from any provider. This lack of awareness towards the benefits of using the open market option is one of the FSA’s major concerns for the health of retirees’ personal finances.

You can secure a significantly larger retirement income by comparing annuity rates on the open market. To get started, use the pension annuity calculator below to get quotes from the entire market and access advice on your retirement planning options.

Pension annuity calculator

More information For further information on annuities and retirement planning, please visit iannuityrates.co.uk. Another useful annuity calculator can be found here from the Banking Times.

Post by James Daly


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