State pensioners aged over 75 can get an average of £10,138 per year on top of their Department for Work and Pensions (DWP) state pension payments by purchasing an annuity. This figure is based on current rates as of October 18, 2026, and assumes a pension pot of £133,000 before tax for an individual pensioner with a level rate and no guarantee, according to SharingPensions.co.uk.
How Annuities Work
Annuities are products that pensioners can buy using their private pension pot, typically built up from work, converting their pension savings into a guaranteed annual income until they die. Life insurance firm LV explains: “A pension annuity is a lifetime annuity you can buy using the money from your pension pot. It will pay you an income for the rest of your life. To be able to receive a pension annuity, you must be at least 55 years old and have at least £2,000 to invest after you’ve taken any tax-free cash.”
Annuities invest your money, allowing it to continue growing while also balancing your life expectancy against the cost of taking it out. Similar to life insurance, annuities weigh up your age, lifestyle, and health factors to determine how much to pay out each year, as well as the amount you have in your private pension.
Downsides to Consider
LV says that annuities have some downsides. They are subject to tax, just like the pension pot itself. Additionally, they cannot be changed or surrendered later, so you need to be sure you want one before proceeding, as there is no going back and getting your money back if you change your mind.
LV adds: “The pension annuity cannot be cashed in or surrendered at any time. Purchasing a pension annuity is a once and for all decision. The options you select when you buy the annuity cannot be changed later on. Annuity payments are classed as income and are subject to income tax, and could affect any state benefits you claim – it is worth seeking advice from a financial professional to see what income tax you may be liable for.”
LV also notes that depending on how long you live, you may receive less than you paid for your annuity, and advises: “Ensure you outline any medical conditions you or your partner have as it may mean you receive a higher annuity income.”
