Retirees have been given an unexpected £100 pension income boost – but experts are urging caution. Annuity rates have been rising due to wider market unrest, with the average annual annuity income up by over £100 since March 2026, analysis from Moneyfactscompare.co.uk reveals.
Annual annuity income has risen by £106 in less than six months, standing at £3,653 now, up from £3,547 at the start of March 2026, based on a £50,000 purchase price. Rising long-term gilt yields impact annuity rate pricing, in recent months the 10-year gilt yield has risen above 5% on more than one occasion, driven by prolonged unrest in the Middle East and political uncertainty.
Annuities gain popularity
The popularity of annuities could well be set to rise, with unused pension pots falling under inheritance tax liabilities from April 2027. The Association of British Insurers (ABI) revealed the total value of premiums paid into individual pension annuities grew 4% to £7.4 billion in 2025, the highest annual level since pension freedoms were announced in 2014.
While experts said the improvement was welcome news for people approaching retirement, they are also urging pension savers not to rush into what is often an irreversible decision. Many believe higher annuity rates, combined with inheritance tax changes due to come into force in April 2027, mean annuities deserve fresh consideration – but only as part of a wider retirement plan rather than a reaction to short-term market movements.
Expert views on the boost
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said annuities had been increasing in popularity in recent years. She added: “Pensioners planning to lock into an annuity may be delighted to find rates have been increasing, leading to the average annual income rising by over £100 in less than six months. Long-term gilt yields impact annuity rate pricing, and in recent months they have been rising due to prolonged conflict in the Middle East and political unrest. Ten-year gilts have breached 5% on a few occasions during 2026 and remain higher than the start of the year. It is entirely plausible for further volatility to long-term gilts, particularly surrounding the Autumn Budget.
“Annuities are due a resurgence in popularity over the coming years as they can be a way to reduce the overall value of an estate, with unused pension pots subject to tax on inheritance from April 2027. Retirees releasing funds out of their pension pots must get good advice to understand the longer-term impact on their retirement income, and whether an annuity is an appropriate choice, or if they should consider an alternative guaranteed fixed-term income plan.
"There are varying income options on annuities, such as those that link to inflation or rise by a set percentage and applicants in poor health could even be eligible for an enhanced annuity. Making sure the annuity is set up correctly to suit a pensioner’s circumstances will be vital, such as a joint life annuity to continue payments to a beneficiary after death for the rest of their life. Sometimes it can be difficult to have wider conversations about later life, but it is really important to understand retirement options and estate planning for peace of mind.”
Graham Nicoll, financial planner, Chartered FCSI at NCL Wealth Partners, said locking into an annuity meant losing flexibility. He added: "Rising annuity rates are welcome, but don't let short-term market movements drive a lifelong decision. A £100 increase in annual income is positive, yet the bigger question is whether certainty or flexibility matters more. For some clients, particularly those wanting guaranteed income to cover essential expenditure, today's higher rates make annuities more compelling.
"But once you buy one, you've effectively handed that capital to the insurer. You lose flexibility, access to the lump sum and, in most cases, the ability to adapt if your circumstances change. With unused pensions becoming subject to IHT from April 2027, the tax advantage of leaving pension funds untouched is reduced.
"However, that alone shouldn't dictate the decision. The best retirement strategies increasingly combine secure income where needed with flexible drawdown from pensions and other investment pots rather than viewing it as an either/or choice."
Rob Mansfield, Independent Financial Advisor at Rootes Wealth Management, said it was important to get annuities right. He added: "Annuities have a poor reputation as the perception is everything gets lost on death. That doesn't have to be the case and there are lots of levers to pull with an annuity and so getting it right from the start is key."The big attraction of an annuity is the secure income for life. If you live to be 100 that's the insurance company's problem but if you're running a drawdown pot you've got to make sure it doesn't run out."
Anita Wright, Chartered Financial Planner at Ribble Wealth Management, said the benefit of the higher rate was wiped out by inflation. She added: "Everyone’s cheering the extra £106. Nobody’s asking why it’s there. Annuity rates are up because gilt yields are up and gilt yields are up because the bond market is getting twitchy about lending to the British government. That’s not a windfall, it’s a risk premium. You’re being paid more because the borrower looks shakier.
"The real trap is the word fixed. £3,653 sounds fine today. Run a few years of inflation through it and it buys half as much. The loss never shows up on a statement, which is exactly why people accept it.
"Look hard at escalating or inflation-linked options, even though the starting income looks worse. It isn’t. And shop the whole market; the gap between best and worst quote is real money. Above all, don’t let a 2027 tax change stampede you into a lifetime decision. Tax rules change. Your annuity won’t."
Harvey Dhillon, founder and CEO at Zmartly, said it only added about £2 a week before tax. He added: "Moneyfacts reports the average income from a £50,000 pot is up by just over £100 a year since March. That is about £2 a week before tax. A better annuity rate is the bond market getting nervous, not an insurer getting generous, and nerves can settle. Whether to buy one is a regulated decision, and I am a management accountant, not an authorised adviser, so that part is not mine to answer.
"What I can tell you is what it costs in tax. Annuity income is pension income. It stacks on your state pension, so check whether it tips you past £50,270, where the next pound costs 40 per cent. Then check the estate side. From 6 April 2027 most unused pension money counts towards your estate for inheritance tax, under the Finance Act 2026.
"That is real, but it changes what your family keeps, not what you are paid. Do not let a 2027 tax change decide an income you may draw for the rest of your life. Get the after tax figure first, then take regulated advice."
Nouran Moustafa, practice principal and IFA at Roxton Wealth, said shopping around was vital. She added: "Rising annuity rates show that market unrest does not create only losers. Higher gilt yields can improve guaranteed income, making annuities more attractive for people who value certainty in retirement. However, nobody should buy one simply because rates have risen by £106 or because unused pension pots may face inheritance tax from 2027.
"An annuity is usually irreversible, so it must fit the wider retirement plan. Shopping around is vital. Health, lifestyle, smoking status and other personal factors can materially improve the rate through an enhanced annuity. People should also compare single-life, joint-life, level and inflation-linked options, because the highest starting income is not always the best long-term deal.
"For many retirees, a blended approach may work better: annuitising enough to cover essential spending while keeping the rest invested and flexible. The right decision should reflect income needs, health, family circumstances and appetite for risk – not headlines alone."
