State pensioners can secure an additional £7,945 on top of their Department for Work and Pensions (DWP) state pension through annuities, as the cost of living crisis drives more retirees to seek guaranteed income. New figures from the Association of British Insurers reveal that premiums paid into individual annuities increased by 4% to £7.4 billion in 2025.
How Annuities Work
An annuity is a pension product that converts a lump sum into a guaranteed income for life. According to financial planner Retirement Line, a 65-year-old investing £100,000 in an annuity can currently expect an average annual income of £7,945. Five years ago, the same investment would have yielded just £4,750.
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 eligible, you must be at least 55 years old and have at least £2,000 to invest after taking any tax-free cash.”
Expert Opinions
Tom Selby, director of public policy at AJ Bell, cautions: “The downside of an annuity is a lack of flexibility – once you’ve locked into that guaranteed income for life, there is no going back.”
Andy King, retirement specialist at Evelyn Partners, notes: “Annuity rates are historically high at the moment, and someone aged 65 could get an income of around 7.3% a year.”
Retirement Line’s Mark Ormston adds: “Ongoing global tensions and volatile stock markets can put pension income in a vulnerable position to any sudden market dips. An annuity transfers that investment and longevity risk to the annuity provider, providing peace of mind that you will receive that level of income no matter what happens.”
Tips for Buyers
All providers offer different annuity rates, so it is essential to shop around to get the best deal. Those with complex health issues or a shorter life expectancy, such as after a heart attack, may qualify for larger payments.
