Annuity market report for Q1 2025

17 April 2025

Written by Retirement Line

As more over 55s take advantage of high annuity rates to secure guaranteed income from their pension savings, we look at how rates rose in the first quarter of 2025.

Annuity rates continue to rise

Annuity rates are of course a crucial factor in determining the level of income someone will receive when purchasing an annuity with their pension savings. The higher annuity rate you secure, the more income you will receive. That’s why any review of the annuity market should start by looking at what is happening to rates.

The table below shows the best available rates from UK providers, generated by Retirement Line’s in-house annuity quote system. It’s important to note that this shows the rate typically at or near the first day of each month.

On the face of it, there’s nothing particularly interesting about Q1 of 2025: rates remained steady across January to March, according to the table.

But as we got further into March itself, we saw a significant rate increase. This is clear from the level rates had reached by  1 April:

Note: Data from quotes gathered in real time from the UK’s leading annuity providers, based on conventional lifetime annuities. Based on a healthy 65-year-old male living in a Peterborough postcode (PE7 8JG) taking a single life annuity with level payments, with the payment frequency set to monthly in arrears.

That rise in annuity rates saw several trade media reports on announcements from annuity providers and others in the industry: 

• Ruth Emery in Money Week reported that ‘annuity rates had hit a 16-year high’ with rates the highest since 2008. She quoted a rate of 7.6% for a 65-year-old with a £100,000 pension pot.
  

• Alina Khan of FT Adviser reported Standard Life data that revealed rates had increased by 8 percent in a year. A rate of 7.36% for a healthy 65-year-old with a pension pot of £100,000 was mentioned, which would add over £10,000 to their lifetime income.
  

• Jenny Hunter of IFA Magazine reported on data from Just showing a 15-year high in its rates for 4 March, which were 7.5% at age 65, 8.35% at age 70 and 9.65% at age for healthy people with a £50,000 pension pot.

Even better news for pension savers is clear when comparing these early/mid-March rates with the 7.95% rate Retirement Line’s own annuity rate tracker shows for a healthy 65-year-old with a £100,000 pot by 1 April.

When discussing rates, we should always remind ourselves that quoting ‘average’ and ‘best’ rates comes with a caveat. Everybody will have their own individual annuity rate, based on their personal circumstances, and this will differ from provider-to-provider.

In addition, most people will potentially get a higher rate on account of health conditions and lifestyle factors with an enhanced lifetime annuity. Those in poorer health will get the biggest rate uplift, and therefore more income from their annuity.

What has driven the rise in annuity rates?

Annuity rates are of course to a large extent driven by changes in gilt yields. A gilt yield is the fixed interest rate on a government bond. Since these bonds are typically used by insurance companies to fund annuity payments, the return they lock-in is reflected in the annuity rate offered to customers.

In his 2024 annuity market report, Retirement Line CEO David Slater said: “If inflation remains stubbornly above the Bank of England’s 2% target, common sense might suggest that a significant drop in gilt yields could be unlikely.” So far this year, that has indeed been the case.

James Guard of Morning Star explained on 2 April that: “The first quarter of the year saw heightened volatility in UK government bonds, a usually uneventful corner of UK capital markets. Still, the drama was focused on the start of the year, with January seeing a spike in yields.”

Looking at the 15-year gilt yield, which is often seen as having a particularly strong link to annuity rates, Market Watch data shows the yield closing at 4.85% on 1 January 2025, and 4.939% on 1 April.

That’s an increase, but not enough to cause the larger uptick in annuity rates in March. So, if gilt yields didn’t drive the annuity rate rise in the final third of Q1, what did?

The answer is, in part at least, down to competitiveness among annuity providers. With annuity rates high and red hot interest in annuities from people looking to turn their pension pots into income, providers are understandably keen to attract customers. The result is good news for pension savers: further rate increases, and more retirement income. 

What’s next for annuity rates?

There have been predictions about falls for gilt yields this year, including by Goldman Sachs in January. In the Bank of England’s March 2025 Market Survey, participants said they would expect the 10-year gilt rate to be between 4.0% and 4.6% at the end of the year (as at the 16 April market close it was 4.6%). As we have seen, falling gilt yields would potentially have a knock-on effect on annuity rates

The first two weeks of the second quarter of 2025 have already proven to be particularly volatile in terms of the global and UK economy. Following the US President’s announcement of trade tariff rates on 2 April, trillions were wiped off share prices.

Markets do not like uncertainty, and it is still unclear what Trump’s actions will mean to trade and the global economy. Share prices and gilt yields have been volatile since 2 April and this looks set to continue. There is concern that tariffs will create recessionary pressures, which will see a decrease in interest rates and gilt yields. 

However, even senior people in the market don’t know for certain what will happen due to the unpredictable nature of things at present. Anyone with a pension pot seeking guaranteed income from an annuity will need to weigh up all the relevant factors when deciding if and when to purchase an annuity.