New data reveals a significant surge in the value of retirement annuities, with the average amount invested now exceeding £80,000 for the first time.
The Association of British Insurers (ABI) has revealed a notable increase in sales of annuities valued over £250,000 and £500,000.
Annuities offer individuals a way to convert their pension savings into a guaranteed fixed income throughout retirement, providing financial certainty.
The ABI indicated that the total value of premiums paid into individual pension annuities rose by 4 per cent annually, reaching £7.4 billion in 2025.
This marks the highest annual level since the introduction of pension freedoms in 2014, which granted people greater flexibility over their pension pots.
Prior to these reforms, individuals with a defined contribution (DC) pension were typically required to convert their retirement funds into an annuity.
However, the freedoms allowed for a broader range of choices regarding how pension savings could be utilised, following earlier controversies where some individuals received disappointing annuity incomes.
Despite a slight decrease in the overall number of annuities sold, the ABI attributes the increase in total value to individuals committing larger pension pots to secure a lifelong income.
Sales of annuities over £250,000 rose by 31 per cent annually, and sales of annuities valued at over £500,000 rose by 54 per cent, the ABI said.
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The increase in bigger annuities pushed up the average annuity value to £84,000, passing £80,000 for the first time, it added.
The higher value of premiums has gone alongside an 8 per cent annual rise in people aged 70 and over buying annuity – suggesting that people in later life are looking for stability while making the most of the favourable rates available to them, the ABI said.
People with health issues which could mean a lower life expectancy may be able to get an enhanced annuity, which pays out a higher rate.
The ABI said that it has seen a growth in escalating annuities – products that increase payments each year – suggesting more customers are looking for protection against the erosion of income over time, including through inflation-linked options.
Rob Yuille, assistant director, head of long-term savings at the ABI, said: “A striking feature of this year’s data is the increase in the size of pots being annuitised, paired with people choosing to secure a regular income at older ages.
“It’s always been a good idea to ‘flex then fix’, using savings flexibly in early retirement, then locking in a guaranteed income at higher rates when certainty matters most.
“Now, with pensions coming in scope of inheritance tax from April 2027, choosing an annuity means a guaranteed income for life, with the option of providing for loved ones without worrying about potentially penal tax impacts.”
David Cooper, director at retirement specialist Just Group, said: “There is a clear shift at the upper end of the market for savers with larger defined contribution pots to prioritise security and lock in predictable income streams.”
Sir Steve Webb, a former pensions minister who is now a partner at pension consultants LCP (Lane Clark & Peacock) said: “There is no doubt that annuities are enjoying a renaissance, particularly at the higher end of the market and amongst those who take financial advice.
“The bounce back of annuity rates from the rock bottom levels seen in the 2010s has brought annuities back into favour, and the more recent decision to include pensions in the IHT (inheritance tax) net from April 2027 has added further impetus.
“Some savers are no doubt planning to combine a large annuity income with other retirement income to generate ‘surplus’ cash which they can gift on a regular basis to their heirs.
“Such gifts can potentially qualify for an IHT exemption under the rules around gifting from surplus income. However, anyone planning such a strategy needs to take good advice and keep good records to ensure that these gifts qualify under the quite strict HMRC rules.”
Carolyn Jones, retirement director, Scottish Widows, said: “More people are choosing annuities because they want greater certainty in an unpredictable economic climate.
“A guaranteed income for life gives them real reassurance, removing the worry about how long their savings need to last or how markets might move over time.
“We’re seeing more customers put larger pension pots towards annuities as they look for long‑term stability, and the ABI’s latest figures tell a very similar story.
“With more people now depending on defined contribution pensions, guaranteed income is becoming a much more central part of how they plan for a secure, comfortable retirement.”
