Kirk Rice Blog

Should You Buy an Annuity Now?Written on September 18, 2026 by Michael Powell

Michael Powell – Financial Planning Partner

Many headlines suggest you can now receive £3,000 a year more from a £100,000 pension fund than a decade ago. For some this creates a genuine opportunity to secure a guaranteed income while rates remain attractive.

For those considering how to turn their pension savings into a retirement income, one option is to buy an annuity.

What is an annuity?

An annuity allows you to exchange some or all of your defined contribution pension pot for a taxable income, usually payable for the rest of your life. Unlike pension drawdown, where your remaining pension stays invested and you withdraw money from it over time, an annuity transfers the money to an insurance company in return for a guaranteed income. The biggest attraction is certainty: no investment decisions, no stock market volatility and no risk of the selected income running out while you are alive. For people who want peace of mind in retirement, that certainty can be very valuable.

The decision is irreversible once made and you give up access to the pension capital used to buy it. Think carefully about inflation protection, spouse or partner benefits, guarantee periods and whether your health or lifestyle could qualify you for an enhanced annuity. These can make a big difference to both the starting income and the long-term value.

Will rates improve further?

Annuity rates are closely linked to long-term gilt yields. If yields fall in future, annuity rates may also fall. The expectation that the Bank of England will change interest rates can be a factor in GILT yields. 15-year gilt yields were barely above 0% in 2020 and reached 5.60% in May this year. From 1999 to the beginning of 2008, it was around 4.50% most of the time and prior it had been about 7%.

Investors have seen very good returns on their investments over the last 18 months and may have seen longer term performance that exceeded annuity rates, however as rates are age related annuities may be more attractive now.

Factors to consider when purchasing an annuity

Purchasing an annuity is not a quick process and to avoid market risk it’s often suggested investors switch the money needed for the annuity into cash within their pension. This protects from market risks.

After completing an application with one provider it is not uncommon to find another insurer is offering a better rate because they have adjusted their own rates in the interim. Offered rates can change at any time and be sure to complete a personal quotation to ‘lock-in’ the rate you’ve seen.

Most people will seek a mixture of guaranteed (including the State Pension) and variable income. A common approach is to use pension money to buy an annuity that meets essential spending (the things you cannot avoid). Leave the remainder invested for flexibility and potential growth. This can provide a useful balance between security and control.

If you have been expecting to buy an annuity it’s certainly better value than 12 months ago.

Shopping around is also essential. Annuity rates vary by insurer and it’s almost a certainty your existing pension provider will not provide the best deal.

Fixed-term annuities

Fixed-term annuities are available to provide income for a fixed term and provide a guaranteed capital value after the income period ends. You then choose whether to annuitise again or retain the money in a defined contribution pension. These take away market risk for the term and may suit someone who expects a change in circumstances in the future and wants to use the annuity to bridge that gap.

Taking regulated financial advice can help you compare the options and avoid decisions that may not suit your wider retirement plan.

If you would like to get in touch with us, please email info@kirkrice.co.uk

Common questions about annuities

Is now a good time to buy an annuity?
It may be worth considering because annuity rates are much higher than they were during the low-interest-rate years (2008 to 2022). An adviser will consider your spending; age; health; other income; family considerations; flexibility. If you have been waiting to retire and always expected to use annuities then nothing changes and it may be worth acting now rather than delaying.

Are rates higher than ever?
No, in the 30 years before 1999 annuity rates were significantly higher along with interest rates. For comparisons the Bank of England Base Rate averaged 11% from 1975 to 1991; 6% from 1992 to 2008; and less than 2.5% since 2008. The current Bank of England Base Rate is 3.75%, but it was higher in 2023 and 2024. If higher inflation means the Bank of England raises rates again that will raise yields on GILTS which underpin annuities.

What happens if annuity rates rise after I buy?
Once an annuity is bought you cannot change the terms.

Do I have to use my whole pension pot?
No. Many people choose to use only part of their pension to buy guaranteed income, while leaving the rest invested for flexibility, withdrawals, future needs or inheritance planning.

Will my income keep up with inflation?
A level annuity pays the same amount each year, so inflation erodes its value to you over time. You can choose an annuity that increases by inflation or a fixed percentage every year, but the starting income will be lower. After about 12 years the income being paid usually exceeds that of a level annuity and keeps rising.

Could I get a better rate because of my health or lifestyle?
Health conditions, smoking history, medication, weight and lifestyle factors may qualify you for a higher income than a standard annuity. You should complete a lifestyle and medical history disclosure when applying for your annuity. Most annuities will not receive an increased rate as the most common situations are reflected in the current illustrative rates.

What happens to the money when I die?
That depends on the options chosen at the outset. You may include an income for a dependant, an income guarantee period or value protection, each will be reflected in an adjusted rate.

This is one reason advice is important before committing.

Please note: This article was correct at the time of publication. It is intended for general information only and should not be relied upon as professional advice. Specific advice should always be obtained based on your individual circumstances.