Glossary · UK
What is Level Annuity?
An annuity that pays a fixed income for life that never changes, so the amount stays the same every year regardless of inflation.
Full Definition
A level annuity is a guaranteed income product bought with pension savings that pays the same fixed amount for the rest of your life. In the UK you can use up to 25% of your pension pot as a tax-free lump sum and use the remainder to buy an annuity from an insurer; the income is then taxed as earnings through PAYE. With a level annuity the payment never rises, so it typically starts higher than an inflation-linked (escalating) annuity but its real value is steadily eroded by rising prices over time. The rate you are offered depends on your age, health, the size of your pot and prevailing interest rates, and you can add options such as a spouse's pension or a guarantee period. Level annuities suit people who want certainty and a higher initial income, or who expect a shorter retirement. They matter because the choice between level and escalating income is largely irreversible once set.