Since Andy Burnham became Prime Minister, pensioners have experienced a notable rise in annuity income, with average annual annuity payments increasing by over £100. Analysis from Moneyfactscompare.co.uk shows that, based on a £50,000 purchase price, the average annual annuity income has risen from £3,547 at the start of March 2026 to £3,653 less than six months later.
This increase is attributed to rising gilt yields, particularly the 10-year gilt yield, which has climbed above 5% multiple times recently. The fluctuations in gilt yields have been influenced by ongoing unrest in the Middle East and political uncertainties, which have affected the bond market and, consequently, annuity pricing.
Graham Nicoll, Chartered FCSI and financial planner at NCL Wealth Partners, highlighted the significance of the rising annuity rates while advising caution. He emphasised that although a £100 increase in annual income is beneficial, individuals should carefully consider whether they prioritise certainty or flexibility in their retirement income. Nicoll noted that annuities offer guaranteed income, which is valuable for covering essential expenditure, but purchasing one means surrendering capital to an insurer, resulting in reduced flexibility, loss of lump-sum access, and limited ability to adjust to changing circumstances.
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Nicoll also pointed out that with unused pensions becoming subject to inheritance tax from April 2027, the tax advantages of leaving pension funds untouched are diminished. However, he stressed that this factor alone should not determine retirement planning choices. Instead, combining secure income from annuities with flexible drawdown from pensions and other investment portfolios often presents the best strategy.
Anita Wright, Chartered Financial Planner at Ribble Wealth Management, cautioned that the increased annuity rates reflect a risk premium due to the bond market’s unease about lending to the British government, rather than a windfall. She advised pensioners to be wary of the fixed nature of annuity payments, which may lose value over time due to inflation, reducing their purchasing power significantly in the long term.
Wright recommended exploring escalating or inflation-linked annuity options, despite their lower initial incomes, as these can provide better protection against inflation. She also urged shoppers to consider quotes from across the entire market, as differences between the best and worst offers can be financially significant. Lastly, she warned against making sudden, irreversible annuity decisions based solely on upcoming tax changes in 2027, reminding that tax policies may change, but annuities remain fixed commitments.