Annuity rates for January 2026: Definition and latest figures

Understanding Pension Annuities: Key Insights for 2026

Pension annuities have regained attention recently, as lifetime annuity rates climbed to their highest point in a decade last year. According to Standard Life, the average annuity rate reached 7.72% in May 2025, a significant increase from 4.71% in July 2020.

Although rates have since dipped from this peak, interest in annuity products remains strong.

Unlike those relying on drawdown income, retirees with annuities are shielded from market fluctuations, as annuities provide a guaranteed income for life after retirement.

However, it’s important to weigh this stability against more flexible withdrawal options. With the possibility of future interest rate cuts, the fixed income from annuities may become less attractive over time.

What You Should Know About Annuity Rates

• Understanding annuity rates
• Top annuity rates for January 2026
• Factors influencing annuity rates

What Are Annuity Rates?

An annuity rate determines the annual income you’ll receive from the annuity you purchase. For instance, investing £100,000 at a 2% rate would yield £2,000 per year, while a 5% rate would provide £5,000 annually.

Before the introduction of pension freedoms in 2015, annuities were the primary choice for retirees.

From age 55 (increasing to 57 by 2028), you can use your pension savings to secure a lifelong fixed income from an annuity provider. Many value the predictability this brings, as it allows for easier financial planning in retirement.

However, annuities can be limiting, as the rate is locked in at the time of purchase. This differs from pension drawdown, which allows you to adjust withdrawals and keep the remainder invested.

Stephen Lowe from Just Group explains: “An annuity transforms your retirement savings into a steady, guaranteed income stream for life, much like a salary that never ends.”

He adds, “You can use part or all of your defined contribution pension to buy an annuity. The income remains stable regardless of market changes, offering greater financial security in retirement.”

Top Annuity Rates for January 2026

The most favorable annuity rate depends on your pension amount, provider, and personal circumstances.

To illustrate, HUB Financial Solutions calculated potential annual incomes for individuals aged 65, 70, and 75, each with a £100,000 pension pot, based on someone living in the PE2 postcode in England.

A 65-year-old could secure an annual income of £7,399.44 with a single annuity from Legal and General. If they have a medical condition, such as chronic asthma, Canada Life could offer £8,232.36 per year.

Older applicants often qualify for higher rates. For example, a 75-year-old could receive £9,184.56 from Legal and General, or £10,567.32 from Aviva if a medical issue is disclosed.

Keep in mind that annuity rates fluctuate and are subject to change.

What Factors Affect Annuity Rates?

Several elements influence the rate you’re offered, including:

• Your age
• Location
• Health and lifestyle
• Medical history
• The size of your pension savings

There is no universal rate; your offer will be tailored to your unique situation. The type of annuity also matters. Single life annuities pay only you, while joint life policies continue payments to a spouse, partner, or dependent after your death—though these typically offer lower income or higher purchase costs.

Other options include level annuities, which pay a fixed amount for life, and escalating annuities, which increase payments over time to help offset inflation.

Annuity rates generally move in tandem with interest rates and government bond yields. Recent years have favored retirees, as the Bank Rate peaked at 5.25% in 2023. While rates have started to decline, the process has been gradual.

Matt Sheach of Lumin Wealth notes that annuity rates have risen sharply from the lows seen between 2016 and 2021, making them more appealing for those seeking guaranteed income in retirement.

He adds, “Given the strong value annuities have offered recently, some savers may choose to lock in current rates, anticipating that they could drop as interest rates fall in the future.”

As with any financial decision, it’s wise to compare offers rather than accept the first quote from your pension provider.

Stephen Lowe advises, “Rates differ between providers, so it’s essential to shop around or consult an independent broker or regulated adviser to explore your options.”