Buying an Annuity in Stages: What the Numbers Actually Show

Buying an annuity in stages has genuine theoretical appeal, but the arithmetic that underpins the strategy is less flattering than most presentations suggest. With average annuity rates sitting around 7.5% at the end of 2025 for a healthy 65-year-old, compared with 4.71% in July 2020, the question of whether to commit all at once or spread the purchase across several years is pressing for a growing number of retirees.

The Legal & General annuity guide and the Association of British Insurers both point to a market in rude health. The ABI recorded £7.4bn in individual pension annuity premiums in 2025, a 4% rise on the prior year. At these rate levels, the timing decision has never felt more consequential.

How Much Timing Has Already Cost Buyers

The case for care over timing is easy to make. On Canada Life’s benchmark, a healthy 65-year-old with £100,000 locked in £4,521 a year in January 2022. By end-September 2022, that same £100,000 bought £6,873. Those who waited nine months secured an extra £2,352 a year for life. That is an extreme example from an extreme year, but it frames the stakes.

Which? tracks the best rate available each month. In 2025, the worst month to buy was February, at £7,525. The best was June, at £8,011. The gap was £486 a year for the rest of a buyer’s life, arising purely from when they happened to sign. In January 2026, the spread between the most and least generous provider on the same £100,000 was £549 a year. Provider shopping closes that second gap; timing cannot be engineered out.

Staging purchases across several dates is essentially insurance against the timing problem. Huang, Milevsky and Young worked through the mechanics in the Review of Finance in 2017. Their finding: if the offered rate improves by roughly a tenth, the proportion of a fixed budget that a buyer should commit immediately jumps from around 5% to around 85%. The authors describe it as an asymmetric dollar-cost averaging strategy. The paper is American and concerns deferred annuities, so the precise figures do not transfer, but the underlying logic does.

What Buying an Annuity in Stages Actually Costs

Standard Life publishes the only detailed UK model of staged annuity purchase. It assumes a saver begins with £150,000, spends roughly £90,000 on a level annuity at 65, then commits roughly £20,000 more at 70, 75, and 80, leaving the remainder in drawdown earning 5% a year with 3% drawn annually. The rates improve with age: 6.6% of the pot at 65, 7.0% at 70, 8.1% at 75, 10.0% at 80. Every bit of that improvement is actuarial: the insurer expects to pay out over fewer years. Market pricing in Standard Life’s model never moves.

By age 90, the staged buyer has drawn £259,115. A single purchase at 65 would have paid £253,775. The difference is £5,340 across 25 years, or 2.1% more income. The staged buyer pays for that upfront in lower income: £8,155 in year one against £10,151 for a single purchase, roughly a fifth less. Annual payments catch up at 75. The running total does not favour staging until 88. The drawdown pot is empty by 80, so the flexibility the model is designed to showcase disappears eight years before the cumulative gain materialises.

A model in which rates never change cannot demonstrate the core benefit of spreading purchases across changing conditions. That is the staging argument’s central problem: the numbers that are available do not test the mechanism being sold.

One factor the model cannot capture is health. Insurers price on life expectancy, so a condition that shortens it lifts the rate offered, and a later purchase may qualify for an enhanced rate where an earlier one would not. Which? found a 65-year-old in relatively poor health quoted 6% above the standard rate by Legal & General and 15% above it by Aviva. That differential is real, though nobody can plan around declining health at a predetermined date.

The rates available also reflect what waiting has already cost. Money sitting in drawdown earns no share of the mortality cross-subsidy that annuities carry: the premiums of those who die early subsidise those who live longer. The better rate at 80 is part-payment for foregoing that subsidy since 65.

On minimum pot sizes, all four major providers, including those tracked by CANNEX in the US context, set a £10,000 floor after tax-free cash, which means a £250,000 pot divides comfortably across four purchases. The mechanics of splitting are straightforward; the economics are not.

Staging is best understood as insurance against a rate move nobody can forecast. It will not reliably leave a buyer ahead of a single purchase. Sold as anything else, the case does not hold. Collect multiple quotes first: at £549 a year, closing the provider gap in January 2026 was the single most actionable decision available. Then decide whether a fifth less income at 65 is a price worth paying to spread a risk that cannot be predicted. The break-even is 88.