How to shop around for an annuity

One way to use your pension pot is to buy an annuity. This gives you a regular retirement income – usually for the rest of your life. In most cases this is a one-off, irreversible decision, so it’s crucial to choose the right type and get the best deal you can. Here’s what you need to consider before making a decision.

Get advice on whether an annuity is right for you

Until recently, most people used their pension pots to buy an annuity. However, under government proposals due to come into effect from April 2015, you will be able to access and use your pension pot in any way you wish from age 55. And between now and 6 April 2015 interim rules apply that give you more choice than before about how much of your pension pot you can cash in. For these reasons it’s vital that you get advice before deciding whether an annuity is right for you.

When and where to get pensions help and advice

New rules about pensions from 27 March 2014

Finding the right annuity for you

If you’ve decided to buy an annuity, you don’t have to buy it from your pension provider. You can shop around on the open market to help ensure you get the best deal and options for you.

Remember to mention any health problems

People with poor health or lifestyle could be eligible for a higher retirement income by qualifying for an enhanced annuity. So don’t hide your health problems or unhealthy lifestyle. It pays to tell your provider if, for example, you’re a smoker or have high blood pressure.

Find out more about Higher retirement income for people with poor health.

Watch this video on why it’s good idea to shop around for an annuity and what to bear in mind when planning your retirement.

Our 4-step guide to shopping around

Research by the Financial Conduct Authority in February 2014 showed that eight out of 10 people who bought an annuity from their existing pension provider would have received a higher retirement income by shopping around.

To help you find an annuity that meets your needs and offers you the best possible income from your pension pot, follow our 4-step plan:


Each year, people throw away £1 billion in retirement income because they didn’t shop around when buying an annuity. Don’t be one of them - make sure that you shop around. If you don’t, you could regret it for the rest of your life.

(Source: NAPF and Pensions Institute Research, February 2012)

Step 1 - Decide on the type of annuity you want

Choosing an annuity is about more than getting the best value on the market. For example, there are several options to choose from and it’s important to choose the right one for your circumstances and pension pot.

So first you need to make sure that you understand the different types of annuity available.

Read our guide Annuities and other types of retirement income.

Step 2 – Check what your pension provider is offering

At least six weeks before your retirement date, your provider will contact you with:

  • Details of the value of your pension pot
  • An indication of the retirement income your pot would generate if you bought an annuity with it

Check whether your agreement with your provider includes a guaranteed annuity rate (GAR). These can be very valuable as they can offer much better rates than those generally available. A GAR may come with restrictions, but can lead to a significant boost to your retirement income.

The retirement income that your current provider offers you is your starting point for finding out if you can get a better rate elsewhere (Step 3).

Step 3 – Use our annuity comparison tables

To use our comparison the tables you’ll need to enter some information, including:

  • The amount of your pension pot
  • The age you plan to retire at
  • Your postcode
  • The type of annuity you’re looking for – for example, whether or not you need an income that will continue to be paid to a spouse or dependant after your death

You’ll also have the option of answering questions about your health and lifestyle (see ‘Remember to mention any health problems’ above). On the basis of the information you provide, the tables will give you a good idea of the annuity rates that different companies are offering.

Use our annuity comparison tables

Step 4 – Discuss your findings with a retirement income expert

In most cases, choosing an annuity is a decision that will determine your income for the rest of your life. So it’s extremely important to make the right choice.

We therefore recommend that you discuss your findings with a financial adviser before choosing an annuity. They are qualified professionals who can give you individual advice on the best way of converting your pension pot into a retirement income, based on your needs and circumstances. The law protects you if the solution they recommend turns out to be unsuitable.

Buying an annuity

If you decide to buy an annuity after shopping around and getting expert advice, there are three ways you can do so:

Through a financial advisor. Before selling you an annuity a financial adviser assesses your needs and circumstances, explains the options and recommends the most suitable product for you. The law protects you if the solution they recommend turns out to be unsuitable.

Through an annuity broker. Brokers provide information about various annuity options, but – not advice. You alone must decide which is the best option for you based on that information. You have fewer rights of redress than when buying an annuity through a financial advisor.

Through a pension provider. Pension providers only give information about their products. You alone must decide whether one of them is right for you based on that information. You have fewer rights of redress than when buying an annuity through a financial advisor.