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 with a defined contribution pension (based on how much has been paid their pension pot – also known as a money purchase pension) used their pot to buy an annuity. However, you can now access and use your pension pot in any way you wish from age 55. For this reason it’s vital that you get advice before deciding whether an annuity is right for you.

You can find FCA registered financial advisers who specialise in retirement planning in our Retirement adviser directory.

Pension Wise – a free and impartial service backed by government - can help you understand what all of your choices are for using your pension pot and how they work. Once you understand all of your options, we recommend you get advice from a financial adviser.

For more information, see our guides below.

Finding the right annuity for you

Research by the Financial Conduct Authority in February 2014 showed that 8 out of 10 people who bought an annuity from their existing pension provider would have received a higher retirement income by shopping around.

If after getting guidance or advice 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.

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 four-step guide to shopping around


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)

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

Step 1 - Decide on the type of annuity you want

Choosing an annuity is about more than getting the best value on the market. There are different annuity types (ones that pay an income for life – including basic lifetime annuities and investment-linked annuities - and ‘fixed-term’ annuities that pay an income for a set period). Within these types you have several options for how you want the income paid. It’s important to choose the right annuity type and income options for your circumstances and pension pot.

To make sure that you understand your key choices, read our guides Using your pension pot to buy a lifetime annuity and Fixed-term annuities.

Higher income for poor health or lifestyle

If you have a diagnosed medical condition or poor lifestyle you could qualify for a higher retirement income from an ‘enhanced annuity’. So don’t hide your health problems or unhealthy lifestyle. It pays to tell your provider – and other providers when shopping around – if, for example, you’re a smoker or have high blood pressure.

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

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 a basic lifetime 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

Use our comparison tables to compare how much retirement income you might get in the open market from a basic lifetime annuity.

It’s anonymous, and quick and easy to use. You’ll need to enter some information, including:

  • The amount of your pension pot
  • Your month and year of birth
  • Your postcode
  • The type of annuity income you’re looking for (your options are explained as you go – see below)
  • A few basic questions about your health and lifestyle –remember to answer these honestly as you could get a higher income

You’ll be talked through your different income choices as you go, and who these are likely to be most suitable for. For example, you’ll need to choose whether you need an income to be paid to a beneficiary after you die and whether you want your income to be fixed or to rise over time.

On the basis of the information you provide, the tables will give you a good idea of the basic lifetime annuity rates that different companies are offering. You can also go back change your choices and compare the results side by side.

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. Financial advisers are qualified professionals who will recommend which retirement income options and products are best for you after taking account of your overall financial and personal circumstances. They are regulated by the Financial Conduct Authority (FCA) and must follow their rules. If the advice they give you turns out to be unsuitable you have protection.

Other ways of buying an annuity

Through an annuity broker. Brokers provide information about various annuity options, but – not usually 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 adviser.

Through a pension provider. Pension providers usually only give information about their products – ask whether they are offering you financial advice and a recommendation or just information. If it’s just information, you alone must decide whether one of their products is right for you based on that information and have fewer rights of redress than when buying with advice. If they offer advice this is likely to be limited to their own products.

Unless you are confident about the choice you are making you should use our Retirement adviser directory to find a financial adviser who will look across a range of products and recommend what’s right for you.