PENSIONERS are racing to take out annuities, with the total number paid into them hitting a record high last year.
In total, £7.4billion was paid into annuities in 2025, according to the Association of British Insurers.
Meanwhile, around 87,600 annuities were sold last year, with each typically now worth £84,000.
Andy King, retirement specialist at Evelyn Partners, explains: “Annuity rates are historically high at the moment and someone aged 65 could get an income of around 7.3% a year.
“Many people might prefer the certainty of a known income compared to the unpredictability of remaining invested in the stock and bond markets.”
But while a guaranteed income in retirement can be tempting, it’s important to consider several other factors before you cash in.
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The amount of money you will get depends on the value of your pension pot, your health, life expectancy and circumstances.
For example, if you have a health condition such as diabetes or high blood pressure then you may be able to get a higher annuity rate, making it even better value.
But if you die early then you may have paid more for the annuity than you got back in yearly income.
Meanwhile, if you die early then not all annuities will pay out to your loved ones after you pass away.
Plus rates change all the time, which can have a huge impact on your retirement income.
Tom Selby, director of public policy at AJ Bell, explains: “The downside of an annuity is a lack of flexibility – once you’ve locked into that guaranteed income for life, there is no going back.”
It’s important to shop around to make sure you’re getting the best deal.
You can compare annuity rates on the Money Helper website.
Meanwhile, if you need annuity advice then contact Pension Wise, a free government service, or speak to an annuity broker.
Make sure they are registered with the Financial Conduct Authority and never accept a quote before taking advice first.
What are the different types of pensions?
WE round-up the main types of pension and how they differ:
- Personal pension or self-invested personal pension (SIPP) – This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
- Workplace pension – The Government has made it compulsory for employers to automatically enrol you in your workplace pension unless you opt out.
These so-called defined contribution (DC) pensions are usually chosen by your employer and you won’t be able to change it. Minimum contributions are 8%, with employees paying 5% (1% in tax relief) and employers contributing 3%. - Final salary pension – This is also a workplace pension but here, what you get in retirement is decided based on your salary, and you’ll be paid a set amount each year upon retiring. It’s often referred to as a gold-plated pension or a defined benefit (DB) pension. But they’re not typically offered by employers anymore.
- New state pension – This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £203.85 a week and you’ll need 35 years of National Insurance contributions to get this. You also need at least ten years’ worth to qualify for anything at all.
- Basic state pension – If you reach the state pension age on or before April 2016, you’ll get the basic state pension. The full amount is £156.20 per week and you’ll need 30 years of National Insurance contributions to get this. If you have the basic state pension you may also get a top-up from what’s known as the additional or second state pension. Those who have built up National Insurance contributions under both the basic and new state pensions will get a combination of both schemes.