Key facts: Annuity rates key off gilt yields (why rates improved sharply as interest rates rose), your age (older = higher income), and your health — enhanced annuities pay meaningfully more for smokers and common conditions. Options cost income: inflation-linking, spouse's benefits and guarantees all trade headline rate for protection. Never accept your provider's quote without shopping — the open-market option exists because quotes vary widely.
The machinery behind the rate
Insurers price annuities on what safe long-term assets (mainly gilts) earn and how long they expect to pay you. Hence the two macro facts: rates track long-term interest rates — the era of rising yields transformed annuity value — and each year of age raises your quote. This also means timing and staging matter: annuitising in slices over several years averages the rate environment and captures age increases, a strategy that pairs naturally with drawdown.
Health: the pay-rise nobody claims
Enhanced (impaired-life) annuities pay more when life expectancy is statistically shorter — and qualifying is far easier than people assume: smoking, high blood pressure, diabetes, high cholesterol, weight, and many common conditions all count. Uplifts are frequently substantial, yet large numbers of retirees never disclose health at all and take standard rates. Rule: complete the health questionnaire fully, every time — in annuities, poor health is literally money.
Options: what protection costs
A single-life, level, no-guarantee annuity quotes the highest headline income — and carries the most risk to everyone around you. Inflation-linking starts notably lower but protects decades of purchasing power. Joint-life continues income (commonly 50–67%) to a surviving partner. Guarantee periods pay out even on early death. Each option trims the starting income; the right bundle depends on your household, other income floors and inflation views — the floor-and-upside logic from our drawdown guide applies directly.
Shopping the open market
Your pension provider must tell you about the open-market option; using it is where the value is — quote spreads between insurers for identical circumstances are wide, and enhanced rates especially demand comparison. Broker-assisted whole-market quotes with full health disclosure are the standard best practice. Partial annuitisation — buying the income floor you need, keeping the rest invested — is often the strongest overall design.
Getting your best quote
An adviser will gather enhanced quotes across the market and size the annuity within your wider retirement plan. Find a pension adviser through Nesto — free, no obligation.
Frequently asked questions
Why did annuity rates improve so much?
Rates track long-term gilt yields — as interest rates rose from historic lows, annuity incomes rose substantially with them.
What health conditions boost annuity income?
Smoking, diabetes, blood pressure, cholesterol, weight and many more — enhanced annuities price shorter life expectancy as higher income. Always disclose fully.
Should I buy an inflation-linked annuity?
It starts lower but protects purchasing power for decades. Many balance it by covering essentials with linked income and taking upside elsewhere.
Do I have to buy from my pension provider?
No — the open-market option lets you buy from any insurer, and shopping it is usually worth a meaningfully higher income.