- Retirement annuity sales reached £7.4bn in 2025.
- Policy changes due from April 2027 are reshaping pension decisions.
- Higher annuity rates are drawing fresh attention to guaranteed income.
The UK annuity market is seeing a notable revival, with annuity sales climbing as savers rethink how to manage their pensions and inheritance tax exposure. Fresh industry figures show retirement annuities had a record year in 2025, suggesting policy changes around pensions are beginning to influence how people plan their finances.
Data released by the Association of British Insurers shows sales rose by 4 per cent to £7.4bn, while the average amount invested crossed £80,000 for the first time. The shift comes as savers weigh the impact of upcoming changes to inheritance tax rules on pension pots.
Interest in annuities appears to be partly driven by changes announced in the October 2024 Budget by Chancellor Rachel Reeves. From April 2027, unused funds in defined contribution pensions are set to be included in inheritance tax calculations if estates exceed the threshold.
Defined contribution schemes cover most private and workplace pensions. The rule change means money left untouched in a pension pot could face inheritance tax, prompting some savers to look at options that convert savings into income instead.
Higher payouts change perceptions
Annuities, long seen by many as poor value, are also benefiting from improved rates. Marianna Hunt at Fidelity International reportedly said recent data shows a 66 year old with a £300,000 pension pot could secure about £22,440 a year from a single life annuity, roughly a 7.5 per cent rate.
She added that five years earlier, similar pots typically generated closer to £13,500 annually, reflecting rates of around 4 per cent to 5 per cent, as quoted in a news report. The increase in payouts is being seen as a significant shift in guaranteed income levels.
Demand for annuities had dropped sharply after pension freedoms introduced in 2015 allowed savers to access their pots more flexibly. The latest figures suggest a mix of tax considerations and a search for predictable income is bringing them back into focus, though whether the momentum holds may depend on how savers respond as the 2027 deadline approaches.
