Should you buy an annuity in tranches?

Most people build an investment portfolio gradually over many decades, through monthly contributions they barely notice.

An annuity works the other way. It is bought in one transaction and cannot be undone, often leaving buyers agonising over timing. With annuity rates at an 18-year high, is now the moment, or is it worth waiting for better gilt yields?

When you buy an annuity can make a big difference. On Canada Life’s benchmark, a healthy 65-year-old with £100,000 bought £4,521 a year in January 2022. By the end of September 2022 the same £100,000 bought £6,873. Those who waited nine months got an extra £2,352 a year for the rest of their life.

Then again, 2022 was not a normal year, and no one knows what will happen in advance.

Tracking annuity rates

UK consumer champion Which? tracks the annuity market each month, recording the best income a healthy 65-year-old could buy with £100,000. In 2025, the worst month to buy was February, at £7,525 a year. The best was June, at £8,011. December closed at £7,665. The difference between best and worst was £486 a year for life.

But now compare providers. In January 2026, the most generous on the market offered £7,649 on the same £100,000. The least generous offered £7,100.

You can close the provider gap by collecting quotes. But you can’t close the timing gap. You can only stop a single day setting your income for life.

While drip-feeding into equities usually leaves you worse off than buying the lot at once, because shares are expected to rise and uninvested money misses the climb, annuity rates carry no such expectation.

Buying in stages is insurance against a rate move nobody can forecast. It won’t leave you better off than a single purchase would, but spreading the purchase over several dates means no single morning’s pricing sets the whole income.

Huang, Milevsky and Young worked the problem through in the Review of Finance in 2017. Give a buyer a fixed budget, improve the rate on offer by roughly a tenth, change nothing else, and the sum they should commit today jumps from about 5% of that budget to about 85%. The authors call the pattern ‘an asymmetric dollar-cost averaging strategy’. The market is American and the product is a deferred annuity, so the numbers do not transfer, but the pattern does.

Standard Life’s model fixes the dates in advance. It is the only detailed UK modelling of staged annuity purchase I can find, and its saver buys at 65, 70, 75 and 80 whatever rates are doing. The rate improves at each purchase, from 6.6% of the pot at 65 to 7.0% at 70, 8.1% at 75 and 10.0% at 80. Every bit of that improvement is the buyer getting older. In the model, market pricing never moves. A model in which conditions never change cannot demonstrate the value of spreading purchases across changing conditions.

Standard Life’s saver starts with £150,000. About £90,000 buys a level annuity at 65, and about £20,000 more buys another at 70, 75 and 80, with whatever is left in drawdown. The model assumes 5% a year on that balance, 3% drawn from it, and good health throughout. By age 90 that saver has drawn £259,115. A single purchase at 65 would have paid £253,775. Standard Life does not do that subtraction anywhere in the release, so here it is: £5,340.

Across 25 years, that is 2.1% more income.

The staged buyer pays for that £5,340 up front. In year one the income is £8,155 against £10,151 for a single purchase, a fifth less. Annual payments catch up at 75. But a decade of shortfall takes some making up, and the running total does not favour staging until 88. The model stops at 90, so the whole gain lands in the last three payments. The drawdown pot is empty by 80, which means the flexibility being sold runs out eight years before the money arrives.

The cost of waiting to buy an annuity

The cost of waiting is built into the rate. An annuity pays more at 80 than at 65 partly because the insurer expects to pay out over fewer years, and partly because buyers who die early subsidise those who live longer. Money still sitting in drawdown earns no share of that subsidy. It sits in markets instead, taking a different risk while it waits. The better rate at 80 is what waiting since 65 has already paid for.

Can you split your annuity pot?

Splitting a pot is easy enough. Aviva, Canada Life, Legal and General and Standard Life all set a £10,000 minimum on what is left after tax-free cash, so £250,000 divides four ways at each of them.

Pricing the split is harder. Phoenix Life, which shares an underwriting company with Standard Life, tells consumers that some providers may pay more on one large purchase than on several small ones. It doesn’t say how much more. Standard Life’s adviser site, meanwhile, says an annuity is unlikely to suit a client who wants savings kept invested for growth, which is what staging asks of them for 15 years. I can find no published estimate of what a UK annuity ladder would actually have returned.

But one argument for staging survives. Insurers price on life expectancy, so a condition that shortens it lifts the rate, and a later purchase may qualify where an earlier one did not. Which? found a 65-year-old in relatively poor health quoted six% above the standard rate by Legal and General and 15% by Aviva. Nobody can plan around that, but it is real.

So the order matters. Collect quotes first: in January 2026 the gap between the best and worst provider was £549 a year, and it is the one gap in this decision you can close. Then decide whether a fifth less income at 65 is worth paying to spread a risk nobody can forecast.

Staging is insurance. Sold as anything else, it is a poor deal.