Buying an annuity? Shop around or risk losing out

Failing to shop around for an annuity could leave you with a lower income than annuity buyers who are five years younger, analysis by retirement specialist Just Group has found. 

Despite a 70-year-old's lower remaining lifespan, rates they are offered aren’t automatically better than those available to a 65-year-old – highlighting the importance of searching for a competitive deal. 

Here we explain the factors that influence annuity rates and how shopping around can leave you better off in retirement. 

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How do annuities work?

Buying an annuity involves swapping some or all of your pension savings for a guaranteed income for the rest of your life.

Once you've bought an annuity you can't reverse the process, so it's important to take the time to choose the right deal for you.  

The exact amount you'll receive from an annuity in return for your pension savings depends on the rate a provider offers you. 

Providers consider the broader economic picture as well as your personal circumstances when pricing an annuity. 

• Find out more: best annuity rates 2025

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How shopping around for an annuity pays off

Life expectancy is key to the annuity rate you are offered. 

The longer you're expected to live, the lower your rate, because the provider will likely be paying you for longer. For this reason, a 60-year-old will generally receive a lower income than a 70-year-old.

However, Just Group found that a 70-year-old with a £50,000 pension would receive £3,560 a year from the least competitive deal – £71 a year less than the best deal for a 65-year-old. 

Meanwhile, the worst deal for a 75-year-old is £4,024, which is £39 a year less than the best deal for a 70-year-old.

Stephen Lowe, group communications director at the retirement specialist Just Group, said: ‘You may have saved with your current pension provider for years, but that is no guarantee that it will offer you a competitive rate.

‘Annuities give people peace of mind to spend what they receive without worrying it will run out during their lifetime. But you have to get the choice right first time – finding the deal that will deliver the best income.’

• Find out more: is buying an annuity the key to a happy retirement?

How to get the best annuity rate for you

The best annuity rate currently on offer for a healthy 65-year-old is around £7,300 per year, which is 10% higher than the lowest rate (£6,648). 

If you're in poor health, smoke or are overweight, you'll be expected to live for a shorter time, so you're likely to get a higher income.

For this reason, it's important not only to shop around but also to declare any health conditions to your provider. 

• Find out more: your options for accessing your pension

Where to get help with your retirement decisions

Only 31% of those who accessed their pension for the first time in 2023-24 took financial advice (down from 33% in 2022-23).

The costs involved mean this isn’t an option for everyone, but you can access free guidance from Pension Wise. This service, from government-backed Moneyhelper, offers face-to-face, telephone or online appointments to over-50s who have a defined contribution pension. 

The session covers your options for accessing your pension, what tax you could pay and how to spot a possible scam.

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