Best annuity rates 2023
Annuity rates are currently (June 2023) at some of their highest levels we have seen for many years, with a healthy 65 year old able to achieve an annuity rate of 7.1% guaranteed for life.
To illustrate this with a real-life example, let’s look at a 63 in January 2022 retiring with a pot of £78,500. After taking their 25% tax free cash sum and therefore investing £58,875, the best annuity rate on the market produced an annual income of £3,376.
In June 2023 this same customer, with the best rate could achieve an income of £4,976, that’s a 47% increase.
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In this guide: We explain how to find the best annuity rates and what can affect them in terms of making your pension pot work hard for you.
What are the current annuity rates?
Current UK annuity rates are at a 14 year high thanks to strong gilt yields and a rise in interest rates. Whilst higher interest rates have sent mortgage costs and everyday expenses spiralling, these increases mean today’s annuities are more financially rewarding and therefore more appealing to those about to retire.
Annuity providers typically buy government bonds or gilts as they are also known to generate a return on your investment. The higher the interest rate, the greater the return which could be an attractive option for retirees looking for the security and stability of an annuity.
Current rates as at 28th June 2023 - table shows annual annuity income from a £100,000 pension pot
||Age 65 smoker
|Single life, level, no guarantee
|Single life, level, 5 year guarantee
|Single life, RPI, 5 year guarantee
|Single life, 3% escalation, 5 year guarantee
|Joint life 50%, level, no guarantee
|Joint life 50%, 3% escalation, no guarantee
With the choice of annuity affecting your income for the rest of your life it’s important that you not only obtain the best annuity rate, but also the best option that suits your situation and that’s why getting advice on the best annuity is recommended.
How to find the best annuity rates
The best annuity rates will depend on a number of things. In addition to gilts and interest rates, other factors such as your age, health and the size of your pension pot will play a part. Getting advice from a specialist pension advisor like Age Partnership could help as they can compare a range of providers for the best annuity rates currently available.
You could also get free impartial guidance from pension wise, a service offered from government backed MoneyHelper.
An annuity uses your pension pot to pay you a regular income for life. The annuity rate is what decides how much income you will get, and it depends on current market rates as well as personal factors such as your age, your health and lifestyle, and your postcode.
A number of factors determine UK annuity rates, including:
1. Current interest rates
Your pension annuity is funded in part by the interest earned on your money while it is invested. The higher the bank base rate (3.50% in January 2023), the higher interest rates and annuity rates are.
2. Gilt yields
Annuities are also partly funded by gilts, which are government bonds. This means that the income paid by an annuity is linked to the yield generated from these gilts. The higher the gilt yield the higher annuity rates and vice versa.
3. Your estimated life expectancy
A pension annuity guarantees you an income for life, however long that may be. So a healthy person in their late 50s is likely to live a long life and need more income than someone who is older, in poor health, or both. This principle is reflected in the pension annuity rate you’re offered. In other words, the longer your life expectancy, the lower your annuity rate and vice versa.
4. Your health and lifestyle
If you’re in poor health or a smoker, or you engage in any other lifestyle activity that could potentially shorten your life, you could get an enhanced annuity at a better rate that could amount to as much as 30% more income.
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Annuity rates can vary widely between providers, and the rate you're offered can be affected by a range of factors. These can include other types of annuity such as:
- Joint cover for you and your partner
- An arrangement to ensure your pension income can continue to be paid to your partner or someone else after your death
- Whether you want your income to remain at the same level throughout your life or would prefer it to rise each year to protect you against inflation.
Because of the different offerings from providers, you may find that some will produce much more income for you than others over the duration of your retirement.
To work out which annuity will be most suitable for your needs and produce the greatest income within your parameters, speak to a pension income specialist such as Age Partnership. They will look at all your circumstances and requirements, both current and future, and then consider the entire market to find the deal that's right for you.
Bear in mind that, like interest rates, pension annuity rates fluctuate over any given period of time. When you're applying for an annuity, it’s worth getting a new quote at the last minute to ensure you're getting the best rate possible.
What is a guaranteed annuity rate?
A guaranteed annuity rate (GAR) is a rate set at the outset of your pension plan. This means it is likely to be much higher than the rates offered today.
According to unbiased.co.uk with-profits pensions taken out before 1988 are most likely to have a GAR, so if you have this type of pension, check your policy documentation carefully or ask your provider.
Standard annuity rates are based on information such as your age, how much your pension pot is worth, where you live, any tax-free cash already withdrawn from your pension pot and any options you have added to your annuity, such as index linking your income.
As this information is limited, standard annuity rates are not as advantageous as those offered with an enhanced annuity. This is because enhanced annuity rates are based on more personal and detailed information about your lifestyle and health.
As with any insurance, the provider factors in the likelihood of a particular event occurring. If you have health issues or have made lifestyle choices that could shorten the length of your life, your annuity provider will consider you a higher risk and offer you a higher annuity rate, which in turn gives you a higher pension income.
Do smokers get better annuity rates?
Yes, as a smoker you’ll qualify for an enhanced annuity and get a higher annuity rate than a non-smoker with the same size pension pot.
If you have a smoking-related condition such as COPD, your annuity rate could be enhanced further, as your ill health would be considered on top of the enhanced rate you get for being a smoker.
What is Martin Lewis advice on the best annuity rates?
Martin Lewis thinks annuities could be a good option for those looking for security. He points out that whilst an annuity may not give you the same return as a pension drawdown product, the money will last you for the whole of your life.
To get the best annuity rates Martin Lewis warns that you shouldn’t just stick to the annuity offered by your pension provider. As annuity interest rates vary, he suggests you shop around, especially if you are in ill health and could benefit from an enhanced annuity.
Speak to the annuity and pension income experts
Age Partnership’s annuity calculator is a good starting point for finding out how much more retirement income you could get.
Then why not talk to the team at Age Partnership about annuities? Their experts will answer any questions, search the whole of the market for the best annuity rates and help you make the right decision when the time comes.
Age Partnership are so confident they can find you the best annuity deal that they will even give you £100 if you find a better like-for-like annuity quote.
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