Guaranteed annuity rates explained

An annuity lets you convert your defined contribution pension into a guaranteed income – either for the rest of your life or a fixed period. 

How much income you can get is usually decided by the annuity rates on offer at the time, which can change daily based on market factors like current interest rates. 

Information like your health and age also affects the quote, so you can shop around to find the best rate. Annuities are typically offered by insurance companies and pension providers. 

For example, if your pension was worth £100,000, an annuity rate of 5% would give you an annual income of £5,000. 

But some pension schemes offer guaranteed annuity rates. This means the rate:

• was decided when you first joined

• will not change

• might be higher than you can get from other providers, as they were often set when rates were higher in the 1980s and 90s

• might have terms and conditions you need to meet to use it – such as taking it at a certain age. 

For more information about annuities, see our guide Take your pension as a guaranteed income: annuities explained.

Your pension provider can confirm if your scheme offers a guaranteed annuity rate. You can also check your scheme’s terms and conditions for words like: 

• retirement annuity contract 

• section 226 policy 

• with-profits 

• preferential 

• guarantee. 

At the same time, it’s worth checking if your pension has any other special features – such as bonus payments. 

For more information, see our guide Check for special features before taking or transferring your pension.

If your pension scheme offers a guaranteed annuity rate, check if there are any terms and conditions for using it.

For example, some schemes might only let you use your guaranteed annuity rate:

• at a certain age – such as at your selected retirement date or a few months either side

• to buy certain types of annuity – such as the rate not applying if you want the annuity income to continue paying out after you die or increase in line with inflation.  

You can ask your pension provider to explain the rules that apply to you.

To check if your guaranteed annuity rate is a good deal, always compare it to quotes from other annuity providers.

As annuity quotes are based on your health and other information, rates can be higher if you have medical conditions or a shorter life expectancy. 

You can:  

• use our annuity comparison tool  

• get quotes from different annuity providers yourself 

• pay a regulated financial adviser to recommend a provider and product for you

For help comparing providers, see our guide How to find the best deal when taking your pension.

An annuity is just one way to use your defined contribution pension. Always make sure it’s the right option for you before deciding. 

To understand and compare all your options:

• see our guide What can I do with my pension pot? 

• check if you can have a free Pension Wise appointment.

When and how you choose to take your pension can affect how comfortable your retirement is.    

A regulated financial adviser can help you plan for retirement, including:    

• recommending products and providers to use   

• advising where to invest your money 

• explaining your options to reduce the tax you might need to pay. 

For more information, see our guide  How to find a pension or retirement adviser.