Gilt yields have jumped – is now a good time to buy an annuity?
War in the Middle East has sent 10-year gilt yields to the highest level since 2008. With higher gilt yields tending to lead to higher annuity rates, should you buy an annuity?
Ruth Emery
Annuity incomes are up slightly since last year due to the conflict in the Middle East pushing up gilt yields and expectations the Bank of England will have to increase interest rates to curb inflation. But experts have said annuity rates could go much higher, in what would be a boost for retirees looking for a guaranteed fixed income in retirement.
An annuity is an insurance product that delivers a guaranteed income for life in exchange for a pension pot. Annuity rates determine how much annual income you can buy from a pension pot in retirement. It's expressed as a percentage, where a higher rate means you receive a larger income.
Annual annuity income has risen by £60 year-on-year on average, according to Moneyfactscompare.co.uk analysis.
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As of 3 March 2026, the average annuity income stood at £3,558, up from £3,498 in March 2025, based on someone aged 65 buying a single life level without guarantee annuity for a £50,000 purchase price.
Rachel Springall, finance expert at Moneyfacts, said: “Pensioners looking to secure an annuity for a regular income could see a boost to the rates on offer in the weeks ahead. Due to the unrest in the Middle East, retirees may want to focus on protecting their current pension arrangements from stock market volatility but also adopt a ‘wait and see’ stance for providers to review their pension annuity rates, due to rising gilts.”
Ten-year gilts have been rising over the past few weeks, hovering around the 5% mark, and rose to above 5% for the first time in 18 years on Monday 23 March, higher even than during the 2022 gilts crisis sparked by then-prime minister Liz Truss’s ‘mini Budget’.
During 2022, annuity rates shot up amid interest rate volatility and stock market uncertainty, so much so that someone who took annuity income in December 2022 versus the start of that year was around £900 per year better off on average.
What are current annuity rates?
The best single life, level, no guarantee annuity income from a £100,000 pension pot for a healthy 65 year old was £7,703 a year, as of 19 March according to the Hargreaves Lansdown annuity tracker. This is about £200 higher than in December 2025 when it was around £7,510, and up from £7,120 in December 2024. Furthermore, it is a vast improvement on the £4,943 annual income available in August 2021, for the same sized pension pot.
Pete Cowell, head of annuities at Standard Life, said: “Annuity rates have been trending upwards over the past couple of years, giving retirees a welcome boost. At a time when market volatility can feel unsettling, annuities provide a level of certainty and long‑term stability that helps people retire with greater confidence.”
As annual annuity incomes have improved, so too has the lifetime total someone buying an annuity can expect. That is the amount in income likely to be paid out to a retiree who purchases an annuity.
According to Standard Life’s Tracker, a healthy 65-year-old man who bought an annuity in December 2025 at a rate of 7.51% could expect a total lifetime income of £150,000. This is up from £143,000 in December 2024.
Meanwhile a woman buying an annuity in December could expect £168,000, reflecting longer average life expectancy. This is an increase from £159,000 in December 2024.
The longer you wait to buy an annuity, the better rate you get (on the assumption life expectancy means you enjoy the income for fewer years). At age 70, the annuity rate rises to 8.25%, generating expected lifetime incomes of £130,000 for men and £148,000 for women.
A 70‑year‑old with a £100,000 pension pot could receive around £8,250 annually, compared with £6,740 for a 60‑year‑old – a difference of £1,510 in yearly income.
Cowell said: “As annuity rates have improved, more people are taking a fresh look at how these products can support their retirement plans, bringing certainty to this next phase of life. In addition, many may wish to use an annuity with more flexible options, like drawdown.
“This can create a balance of security and freedom and can be a simple way to make sure some of your essential spending is covered for life, while keeping flexibility for everything else.
“Ultimately, it’s key to review all options when approaching retirement, and remember you can always seek advice or guidance to help make the best choice for your circumstances.”
Why are annuity rates rising?
So, why have annuity rates been rising? Annuity rates are closely linked to government bond (gilt) yields and gilt yields surged to their highest level since 2008 in March 2026. Gilt yields go up with interest rates; consequently the rise in interest rates over the past few years has been good news for annuity incomes.
That said, the fall in interest rates during 2025 – the Bank of England reduced rates four times last year, with its most recent cut in December, from 4% to 3.75% – did not materially affect annuity incomes.
Analysts are now pricing in up to a 1 percentage point increase in interest rates this year. This is because it is expected the knock-on effect of higher energy prices, caused by the US-Israel war with Iran, will push up inflation, forcing the Bank of England to raise interest rates to keep a lid on higher prices.
Shopping around for an annuity can also get you a better deal compared to staying with your current pension provider.
Will annuity rates fall?
The outlook for annuity rates this year largely depends on what happens to gilt yields, which kicked off 2026 by falling to its lowest level since 2024 and have since risen substantially amid the US-Israel war with Iran due to expectations interest rates will rise.
If interest rates fall this year, gilt yields may follow suit, which will likely negatively impact annuity rates.
Holly Tomlinson, financial planner at the wealth manager Quilter, said: "Annuity rates are closely tied to government bond yields, which can be influenced by changes in interest rates. A reduction in the base rate may lead to lower bond yields, potentially resulting in less favourable annuity rates for retirees."
Indeed, annuity rates drifted downwards in 2024 following two interest rate reductions, but then soared during the gilt turmoil in January 2025.
At its interest rate decision in February, the Bank of England said: “If the economy evolves as we expect, there should be scope for some further cuts to Bank Rate this year.” However at its meeting ending on 18 March 2026, the Monetary Policy Committee (MPC) voted unanimously to maintain the Bank Rate at 3.75%, and suggested it would raise rates if necessary to keep inflation under control, saying the Bank “stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term”.
Why are annuities so popular?
- Annuities guarantee an income for life and currently offer better value than they did in the past
- Some types of annuities can beat inflation
- Some annuities provide income for your partner after you die
- Buying an annuity may be appealing, ahead of pension pots becoming liable for inheritance tax from April 2027
A big reason behind the appeal is the fact annuities represent much better value, and pension savers can now get a bigger annual income in exchange for their pension pots compared to if they’d bought the same annuity just a few years ago.
This income is guaranteed as long as they live, so it provides security and peace of mind that the insurer will keep paying the money regardless of how long the retiree lives. Some annuity payouts increase each year, helping eliminate the inflation risk, while others pay an income to a spouse on death.
Another reason why annuities have become more popular in recent months is 2024’s Autumn Budget announcement that pension pots will be liable for inheritance tax from April 2027.
Helen Morrissey, head of retirement at Hargreaves Lansdown, said at the time: "This will remove many people’s rationale for using income drawdown as they used it to pass the pension down generations tax-efficiently rather than draw an income from it. As they revisit their retirement income plans, many may opt to secure a guaranteed income through an annuity instead.”
Cowell, head of annuities at Standard Life, added at the time: “Looking ahead, we expect annuity rates, as well as the demand for these types of products, to remain strong, especially with pensions being brought into scope for inheritance tax from 2027. Wealthier savers may be encouraged to access more of their pensions, with annuities becoming an increasingly attractive way of doing so.”
Is an annuity right for me?
- Annuity rates are high at present but that doesn’t mean an annuity is right for you
- While annuities provide regular income, they don’t offer growth or flexibility
- Buying an annuity while keeping some money in a pension may suit you better
- Get annuity advice from an expert if you’re unsure, as the decision is final
Just because rates are high at the moment and represent good value, that doesn’t necessarily mean an annuity is the right retirement strategy for you.
Using your pension pot to buy an annuity is an irreversible decision, so you need to think carefully before making your mind up and should seek financial advice if you are unsure. You can find an independent adviser at Unbiased or VouchedFor.
According to the ABI’s latest data from 2025, more annuity purchases occurred after taking financial advice in 2024, with 36% of buyers taking advice beforehand compared to 29% in 2023.
Some people may prefer to keep their pension pot in drawdown. This is when you keep part of your pot invested (where it will hopefully continue to grow), while withdrawing cash flexibly as and when you need it.
We look at how to find the best pension drawdown provider in a separate guide.
FCA data shows that pensions drawdown is the most popular option among retirees. Sales of drawdown policies saw the biggest increase from 278,977 in 2023/24 to 349,992 in 2024/25 (25.5%). By comparison, sales of annuities increased by 7.8% from 82,061 in 2023/24 to 88,430 in 2024/25.
However, as previously mentioned, this could change as pension pots become liable for inheritance tax. Experts predict that savers may stop preserving their pensions to pass on to beneficiaries tax-free, and instead look at buying a guaranteed income with their pension.
Swapping a pension for an annuity means you get rid of your pension, reducing the size of your estate and any potential inheritance tax bill.
Stephen Lowe at the retirement firm Just Group said: “I think in today’s environment many people are seeing current annuity rates as sufficient to meet their retirement objectives and a good time to lock in. Along with other sources of guaranteed income such as the state pension, it provides peace of mind that there will always be an ongoing income to cover day-to-day bills.”
A potential downside with annuities is that, unless you choose a joint-life annuity, when you die, the income dies with you. So, if you only live a few years after you purchase the product, you won't have received much money from your pension.
Some people may prefer to do a combination of the two approaches. You could use part of your pot to buy a guaranteed income, while leaving the rest invested so that you can draw on it as and when you need.
There are different types of annuities on the market. Some are linked to inflation, while others pay a fixed amount each year.
Joint-life annuities continue to pay an income to a beneficiary (such as a spouse or civil partner) after you die, while others do not.
You can buy an annuity at any time in retirement, so you could leave it until you are older – especially as the older you are, the higher the annual income.
Purchasing an annuity earlier in retirement typically results in higher overall total income. However, annuity rates tend to increase with age, meaning those who choose to buy an annuity later in retirement are likely to benefit from better rates.
Clare Moffat, pensions expert at Royal London, said: “The most suitable option will depend on an individual’s needs and while annuities aren’t for everyone, there are scenarios where they could be beneficial, so they should be considered as part of the retirement planning process.
“Many want complete flexibility with their retirement income, which explains the popularity of drawdown, while for others, buying an annuity offers them the comfort of a guaranteed income. For those people initially opting for income drawdown, that may not be the final decision. As people get older, some are keen to introduce a form of guarantee, so a happy medium for many is an annuity to cover basic living costs, providing comfort and reassurance, while leaving the rest invested for extra flexibility.”
Shopping around for an annuity
- Accepting the annuity offered by your pension provider could cost you thousands
- Find the best annuity rates by shopping around as you would for insurance
- The best annuity for you may not be the one offering the highest starting income
- You may get an annuity with a higher payout by sharing health details with providers
As well as considering what type of annuity is right for you (if any), you should do your homework to ensure you get the best rate.
“Different providers offer different rates and not searching the market can leave you thousands of pounds worse off over the course of your retirement,” Morrissey said.
Almost a third of retirees fail to shop around for the best annuity deal, instead sticking with their pension provider, according to the ABI figures.
Using a comparison site is a good starting point, Morrissey said, but reminded retirees that there’s more to consider than the annual income alone.
“Single-life annuities offer higher incomes than joint-life ones but the joint-life one will offer an income to your spouse should you die first,” she pointed out.
Similarly, an inflation-linked annuity will generally offer a lower starting income than a level annuity, but if you live long enough, you might end up getting more from the inflation-linked product.
Finally, Morrissey recommended giving all of your health details – including whether you smoke or drink – as this information feeds into the insurer’s calculations and can result in you getting an enhanced annuity, which pays a higher rate of income.
