Annuity sales soared to their highest level in a decade in 2024, as UK savers seek guaranteed incomes to weather uncertain economic conditions.
Insurers sold £7bn in annuities – which provides you with a yearly income for the rest of your life – in 2024, according to the Association of British Insurers (ABI).
It’s the highest figure since George Osborne’s 2014 “pension freedoms” Budget, driven by an ageing population and policy changes introduced by Rachel Reeves in her first Budget last year.
Nick Flynn, retirement income director at Canada Life, said: “With people increasingly living longer lives, more individuals are seeking guaranteed income solutions, making annuities an attractive option.
“Furthermore, with pensions coming into the scope of inheritance tax (IHT) from 2027, this could be an early sign that people are rethinking their financial plans for their retirement.”
The number of annuities sold rose by 24 per cent last year to 89,600, a 10-year high, however, it is still only a quarter of the 2013 figure.
Sales plummeted in 2014 after then-chancellor George Osborne removed long-standing restrictions that pushed most pensioners to annuities.
It meant the number sold dipped to an all-time low of just under 50,000 in 2020, down from about 350,000 in 2013.
But rising interest rates, alongside a longer-term fall in the number of people on generous defined benefit (DB) pensions, have lured savers back to annuities over the past two years.
Despite the increase, annuity purchases continue to make up only a small proportion of the ways in which people access pension wealth.
They were most popular among people with pension pots worth between £50,000 and £250,000, the research showed.
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Read MoreStephen Lowe, group communications director at retirement specialist Just Group, said: “Competition is thriving in the retail annuity market thanks to the focus of financial advisers and brokers shopping around on behalf of their clients.”
More people are taking financial advice when buying an annuity, Mr Lowe said – up from 29 per cent in 2023 to 36 per cent in 2024.
He said this has contributed to a higher proportion of buyers securing enhanced annuity rates paying a higher income based on health history and lifestyle factors.
According to Hargreaves Lansdown’s data, someone who annuities a £100,000 pension pot at the age of 65 would receive an annual income of £6,309 for a single life, level annuity with a five-year guarantee.
An individual who took out the same annuity at the age of 75 would receive £9,368 a year.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “If you remained invested in income drawdown at the age of 75, your portfolio would have to work very hard from an investment point of view to generate those returns.”
Income drawdown offer you complete control over your income withdrawals, whilst your pension remains invested.
Pete Cowell, head of annuities at Standard Life, said: “The majority of people say they want some form of certainty with their retirement income, and annuities do just that – providing peace of mind through a regular, guaranteed income.
“Annuity rates have improved over recent years – the current annuity rate for a healthy 65-year-old stands at 7.2 per cent and the rate for a 70-year-old stands at 8.2 per cent – and there is renewed focus on using these products to deliver income certainty.”
Cowell said he anticipates demand for annuities to remain strong throughout 2025 and beyond, particularly with changes from the October Budget bringing pensions into the scope for IHT from 2027.
He added: “The change is likely to encourage wealthier savers to access more of their pensions and annuities are proving an attractive way of doing so.”
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