Picking the wrong pension annuity could end up costing you £400 or more a year in your retirement

Annuity rates are at the highest level they have been at since 2009 – but research suggests customers may be losing out on bigger retirement incomes by not carefully choosing their provider.

Figures from Canada Life suggests annuities – fixed annual incomes people buy for their retirement with their pension pot – have not been this high for 16 years.

Pension Potential – an annuity provider – says that a healthy 67-year-old with a £100,000 in pension savings could secure an annual income of £7,795, up from £7,146 in January.

The reason that annuities are getting more generous is partly because gilt yields – the return an investor receives for buying government debt – rose earlier in 2025, and the two are heavily correlated because of how pension providers tend to invest.

Experts say we are now in a “buyer’s market” for annuities, with plenty of competition between providers.

But polling suggests a lot of people are not actively comparing rates and are purchasing from their existing pension provider.

Doing so could mean missing out on hundreds of pounds every year in retirement.

What is an annuity and how are they calculated?

Most pension savers with defined contribution (DC) pensions – the most common type – put money into a pot every month during their working life and invest the money for their retirement.

When they reach the point that they can access their pension they can pull money from their pot via drawdown while keeping the money invested, or they can buy a fixed income for life – an annuity.

Some people prefer annuities to drawdown because they offer security, in the form of guaranteed income, but it’s common to use a mixture of the two.

Annuity rates in years gone by have been very poor, but they have risen again in the past three years.

The amount you will get depends on multiple factors, including the size of your pension pot, your age, and your health, as the firm selling you one is essentially weighing up how long you will live, and how many years it will have to keep paying you your annuity.

Are rates the best for everyone?

What sort of income you will get for your pension pot depends on your individual circumstances.

But Canada Life says for a single life annuity policy with a £100,000 purchase price with no lifestyle conditions, rates are the best for 16 years for those aged 60, 65 and 70.

Nick Flynn, the organisations’ retirement director, said: “The good news is that we’re currently in a buyer’s market, with annuity rates at their highest since 2009 – making it an ideal time for prospective retirees to consider their options, potentially securing greater value from their pension savings.”

How to avoid missing out on the best deals

Analysis of the latest FCA Financial Lives Survey data suggests that a third (33 per cent) of adults aged 50-plus who bought an annuity in the last four years had not compared the products and prices of two or more providers before purchasing their annuity.

More than one third (35 per cent) of the same group said that they had purchased from the same provider they saved for their pension with and a further 12 per cent were unsure if they had done so.

Analysis by multiple retirement organisations suggest the gap between the best and worst annuity rates is widening, and buyers could miss out on £400 or more a year if they do not shop around.

Stephen Lowe, group communications director at Just Group, said: “There are still too many ‘zombie buyers’ who are not shopping around to get the best annuity deals available. Over the course of an entire retirement, a saver failing to shop around could be missing out on thousands of pounds of extra income – the closest thing in the financial world to being given ‘free money’.

“Anyone considering purchasing an annuity should shop around the open market and ensure they disclose information on health and lifestyle factors to make sure they get a personalised rate – all of which will help them secure the best rate on offer to them.”

Steve Butler, managing director at Pension Potential, added: “Annuities provide peace of mind with a guaranteed income for life or a set term, taking away the stress of managing your money in retirement.

“But the gap between the best and worst rates can be as much as 15 per cent, and up to 80 per cent if you qualify for an enhanced annuity. That could mean missing out on tens of thousands of pounds in income over your lifetime.”