Annuity sales are at a 10 year high, with 89,600, people using their pension to secure a guaranteed income for life last year — a 24 per cent annual increase.
In total annuity sales were worth £7bn last year — a 34 per cent increase on 2023 according to data from the Association of British insurers.
This boom has been driven by higher annuity rates. Currently rates a 65-year-old with a £100,000 pension can secure an income of up to £7,490 per year from a single life level annuity with a five-year guarantee, according to best buy annuity sites. This rate rises ro more than 8.2 per cent for 70-year olds.
The ABI figures show that six providers now offer annuities to customers, and last year just under seven out of 10 (69 per cent) of buyers secured an annuity from a company that was not their pension provider. This is a modest increase on the 64 per cent of annuity buyers who used this open market option in 2023. However this still means that around 30 per cent of buyers are failing to shop around, potentially locking into a lower income for life.
ABI data shows that around 20 per cent of all sales were the age of 65, indicating people were buying an annuity at retirement. The proportion of joint life annuities, that provide for a dependant, enhanced annuities based on health and lifestyle underwriting, and escalating annuities, that keep pace with inflation, also all increased over the last year.
The ABI’s data also shows more people bought annuities after taking financial advice, with 36 per cent of buyers taking advice before purchase compared to 29 per cent in 2023.
Sales of annuities declined significantly after the introduction of pension freedom rules a decade ago. This gave people more flexibility around drawdown options, at a time when annuity rates had fallen significantly due to increased ultra-low interest rates and the gradual increase in life expectancy.
ABI head of long-term savings policy Rob Yuille says: “These figures demonstrate how valuable annuities are in the mix of retirement products. Buoyed by improved rates, the appeal of a guaranteed income for life can help people achieve financial security in retirement.”
Standard LIie head of annuities Pete Cowell says: “The growing appeal of annuities is clear in the latest figures published by the ABI. 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 and there is renewed focus on using these products to deliver income certainty. This surge reflects both the rising demand among retirees and a shift in how financial advisers are considering these types of products when speaking to their clients. There is increasing recognition on the flexible ways a guaranteed income can be integrated into a broader decumulation strategy, creating a tailored retirement plan based on a client’s needs.
“Lifetime annuities, for example, offer the security of an income for life, while fixed-term annuities provide certainty for a set period, allowing retirees to reassess their options later. Purchasing annuities in stages can also help mitigate the impact of inflation and market fluctuations.
“We anticipate demand for annuities will remain strong, particularly with changes from the October Budget bringing pensions into scope for inheritance tax from 2027. The change is likely to encourage wealthier savers to access more of their pensions and annuities are proving an attractive way of doing so.”
Hargreavs Lansdown head of retirement analysis Helen Morrissey adds: “Annuity sales soared to a 10 year high in 2024, and we can expect 2025 to have got off to a flying start too. The market has been kick-started off the back of rising interest rates and soaring gilt yields, and this has tempted retirees back to the market.
“The bond market dramas at the start of the year may have been unsettling for investors, but they were a boom time for annuities.”
She adds that it is encouraging that this data shows more people are shopping around and tailoring their annuity purchase to fit their circumstances, with sales of joint life, enhanced and escalating annuities all on the rise.
She adds: “With the decline of defined benefit pensions, many retirees are in need of a level of guaranteed income and so it’s a real positive to see the annuity market delivering good value.” She adds many are seeing the benefit of annuitising in slices throughout their retirement, while keeping a portion of pension savings in drawdown. “Annuitising at later ages can bring higher incomes and the increased probability that you will qualify for an enhanced annuity, with higher payouts. It’s an approach that can bring both certainty and flexibility to people’s retirement plans.”
Royal London pensions expert Clare Moffat adds: “The increase in annuity sales in 2024 shows that annuities do have their place. Interestingly, people often say they don’t want an annuity, but when asked what they would like from a retirement income product, they list factors like certainty, simplicity, an income that will last as long as they do, and protection for their dependents. This description sounds a lot like an annuity.
“It’s also encouraging to see an increase in joint life annuities and escalating annuities. If you purchased an annuity in 2021, escalating by either CPI or RPI, you will be delighted with the growth in income because of the high rates of inflation. If you didn’t choose escalation, you’d be in a very different position as the purchasing power of your income will be reducing significantly.”
