Retirees risk losing thousands by not shopping around for annuities

Retirement savers who fail to shop around when buying an annuity could be missing out on hundreds of pounds a year, according to new research. 

Figures from retirement specialist Just Group indicates that one in three annuities are bought from the original pension provider, raising concerns that some are sleepwalking into decisions that could affect their income for life.

Here, Which? outlines the factors that influence annuity rates and how shopping around can leave you better off in retirement.

Should you buy an annuity?  

Annuities have had a boost in sales over the last couple of years driven by high interest rates and volatility in the investment markets.

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

But 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.  

How much income you'll receive from an annuity in return for your pension savings depends on the rate you're offered. 

Annuity companies 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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Don’t be a 'zombie' buyer

So-called ‘zombie’ buyers are failing to get quotes from a range of providers in order to get the best possible deal.

The Just Group research, which is based on findings from the Financial Conduct Authority’s Financial Lives Survey, showed that a third of adults aged 50+ who bought an annuity in the last four years said they had not compared the products and prices of two or more providers before purchasing their policy. 

A third of the same group went with the same provider they had a pension with, and a further 12% were unsure if they had done so. 

At the start of 2025, the gap between the best and worst annuity rates widened to more than £400 a year on a £50,000 annuity – a difference that can add up to thousands of pounds over the course of retirement.

• Find out more: how much you need to retire

How to get the best annuity rate

The specific income level that you get depends on the quote that you receive from the annuity provider (given as a percentage, e.g. 7% of your fund a year) and the amount you're converting into an annuity (your initial pension pot).

Annuity providers typically fund these products using returns from government bonds (known as gilts), which are considered low-risk investments. When the base rate is high, gilt yields tend to inflate, which in turn pushes up annuity rates. 

The best annuity rate currently on offer for a healthy 65-year-old with an initial pension pot of £100,000 is £7,974 per year, which is 12% higher than the lowest rate (£7,094). 

How health and lifestyle affect your annuity options

If you're in poor health, smoke or are overweight, you may be eligible for an enhanced annuity – which pays a higher income based on a shorter life expectancy. 

In June 2025, quotes run by Which? Money for a 65-year-old in relatively poor health, with a £100,000 pension pot, showed an enhanced annuity paid between 6% (Legal & General) and 15% (Aviva) than a standard annuity.

The calculations were for an overweight smoker who is taking medication for high blood pressure and high cholesterol.

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

People don’t tend to know about enhanced annuities. Three-quarters of adults aged 50-69 planning to access their defined contribution pension in the next two years did not know that certain health conditions could increase their annuity income, according to the Financial Conduct Authority (FCA). 

• Find out more: what are enhanced annuities?

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Where to get help with your retirement decisions

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

Retirement planning can be complex, so speaking to a financial adviser is sensible. A comparison site is a good place to start the search for one. Unbiased is a free-to-use service that can connect you with independent, FCA-regulated financial advisers. Similarly, VouchedFor is a directory of verified advisers with reviews from real clients.

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.

• Find out more: how to get pension advice and guidance for your retirement