The annual income that retirees can now secure using £50,000 from a pension pot has risen by more than £100 in just a few months.
Experts say a decision to bring pension pots into inheritance tax from April next year means more people are choosing to use the money to buy an income for life rather than leaving it to the taxman. The amount of guaranteed annual income that pension savers can lock in through an annuity has jumped in just a few months as higher Government borrowing costs feed through into retirement products.
New analysis from Moneyfactscompare.co.uk shows someone aged 65 using a £50,000 pension pot to buy a standard single-life level annuity can now secure an average annual income of £3,653.
That is £106 a year more than was available at the beginning of March, when the same pension pot would have bought £3,547 a year.
For those with a £100,000 pension fund, the equivalent income would be around £7,306 a year, assuming the same average rate – up from about £7,094 in March, an increase of roughly £212 annually.
The improvement comes as long-term UK Government bond yields, known as gilt yields, have remained elevated. Insurers use these yields when pricing annuities, meaning higher gilt yields generally translate into higher guaranteed retirement incomes.
Ten-year gilt yields have risen above 5% on several occasions during 2026 amid continued conflict in the Middle East and political uncertainty, helping to support annuity rates.
The figures also come ahead of a major tax change due in April 2027, when most unused pension funds are set to become subject to inheritance tax under Government plans.
Financial experts believe this could encourage more retirees to consider using part of their pension to buy a guaranteed income instead of leaving money invested.
Latest figures from the Association of British Insurers also underline the revival in the market. The ABI says £7.4 billion was paid into individual pension annuities during 2025, a 4% increase on the previous year and the highest annual total since pension freedoms were announced in 2014.
Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Pensioners planning to lock into an annuity may be delighted to find rates have been increasing, leading to the average annual income rising by over £100 in less than six months.
“Long-term gilt yields impact annuity rate pricing, and in recent months they have been rising due to prolonged conflict in the Middle East and political unrest. Ten-year gilts have breached 5% on a few occasions during 2026 and remain higher than the start of the year.
“It is entirely plausible for further volatility to long-term gilts, particularly surrounding the autumn Budget.”
She added that annuities could become increasingly attractive because of the forthcoming inheritance tax changes affecting unused pension pots from April 2027.
Ms Springall said retirees should still seek professional advice before committing, as buying an annuity is usually irreversible and there are different options available, including inflation-linked policies, enhanced annuities for those with health conditions and joint-life annuities that continue paying a surviving spouse or partner.
Average annual annuity income (using £50,000)
August 2026 – £3,653
March 2026 – £3,547
Increase – £106
Average annual annuity income (using £100,000)
August 2026 – £7,306
March 2026 – £7,094
Increase – £212
*Based on an annuitant aged 65 buying a standard single-life level annuity with no guarantee period. Source: Moneyfactscompare.co.uk.
Why annuity incomes have risen
- Higher long-term gilt yields have improved annuity pricing.
- Ten-year gilt yields have topped 5% several times during 2026.
- Market volatility linked to geopolitical tensions and political uncertainty has pushed borrowing costs higher.
- Planned inheritance tax changes affecting unused pension pots from April 2027 could increase demand for guaranteed retirement income products.