Sales of retirement annuities have reached record levels, driven partly by changes to inheritance tax (IHT) 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.
Annuities, which convert a pension pot into a guaranteed income for life, had fallen out of favour after the 2015 pension freedoms removed the requirement to buy one. However, Reeves's October 2024 Budget revealed that from April 2027, unused pension savings in defined contribution schemes will be included in the estate for IHT purposes, prompting many to seek ways to reduce their tax liability.
Clare Moffat of Royal London noted that the IHT changes have increased interest in using annuities for tax planning. Meanwhile, improved annuity rates are also attracting buyers. Marianna Hunt of Fidelity International said a 66-year-old in good health with a £300,000 pot could now secure an income of £22,440 a year, a rate of about 7.5%, compared to 4-5% five years ago.
