Sales of retirement annuities have reached record levels, driven in part by changes to inheritance tax announced by Chancellor Rachel Reeves. Industry data from the Association of British Insurers shows a 4% increase in sales to £7.4bn in 2025, with the average annuity pot surpassing £80,000 for the first time.
The revival comes after years of decline following the 2015 pension freedoms. However, Reeves's October 2024 Budget confirmed that from April 2027, unused defined contribution pension savings will be subject to inheritance tax if they exceed the threshold. This has prompted many savers to consider annuities as a way to reduce their taxable estate.
Annuities, which provide a guaranteed income for life in exchange for a lump sum, have also become more attractive due to higher rates. Fidelity International notes that a 66-year-old with a £300,000 pot can now secure an annual income of £22,440, representing a rate of about 7.5%, compared to 4-5% five years ago.
Clare Moffat of Royal London commented: “With changes next year to inheritance tax and pensions, there has been an increased interest in using annuities for IHT planning.” The product, once seen as dull and poor value, is now being embraced for its certainty and tax advantages in turbulent times.
