State pensioners aged 55 and over can secure annuity payments worth up to £8,509 on top of their Department for Work and Pensions (DWP) state pension, as average payouts reach new highs. Legal and General has confirmed that UK annuity rates have risen significantly over the past few years, driven by their close link to interest rates.
How Annuity Rates Have Risen
Annuity providers typically purchase government bonds to generate reliable returns for their customers. When interest rates increase, bond yields rise accordingly, boosting annuity rates. According to Legal and General, this mechanism has led to substantial growth in annuity payouts, with rates now at an 18-year high.
SharingPensions founder Colin Thorburn highlighted the scale of the increase: "Annuity rates are at an 18-year high increasing up to 118% for certain ages and annuity features since the recent low in December 2021." He added that "annuities are currently higher as gilt yields reached an over 20 year peak of 5.60% on 15 May 2026."
What Is an Annuity and Who Can Get One?
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 offer a secure income stream, with payments guaranteed for life regardless of stock market fluctuations or economic conditions. However, LV warns that the decision is irreversible: "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."
Tax and Benefit Implications
Annuity payments are classified as income and are subject to income tax. They may also affect any state benefits you claim. LV advises: "It is worth seeking advice from a financial professional to see what income tax you may be liable for." Additionally, depending on how long you live after purchasing the annuity, you could receive less than you paid in.
LV also recommends disclosing any medical conditions: "Ensure you outline any medical conditions you or your partner have as it may mean you receive a higher annuity income."
Security and Risks
Once you lock in an annuity rate, the income is completely secure. Your annuity will pay out for the rest of your life, even if you live to 100 or beyond. It continues paying the agreed amount regardless of stock market performance or broader economic changes.
However, the risk remains that you might get back less than you contributed if you die earlier than expected. As LV notes: "Depending on how long you live, you may receive less than you paid for your annuity."
