Sales of retirement annuities have reached record levels, driven partly by changes to inheritance tax announced by Chancellor Rachel Reeves. Industry data from the Association of British Insurers shows that annuity sales grew by 4% to £7.4bn in 2025, with the average amount invested surpassing £80,000 for the first time.
An annuity converts a pension pot into a guaranteed income for life. Demand had fallen after the 2015 pension freedoms, but Reeves's October 2024 budget announced that from April 2027, unused pension savings in defined contribution schemes will be included in the estate for inheritance tax purposes. This has encouraged people to use annuities to reduce potential tax liabilities.
Clare Moffat of Royal London said: 'With changes next year to inheritance tax and pensions, there has been an increased interest in using annuities for IHT planning.' Improved rates have also boosted sales. Marianna Hunt of Fidelity International noted that a 66-year-old with a £300,000 pot could now secure an annuity paying £22,440 a year, compared to around £13,500 five years ago.
