Annuity sales reach a decade high as better rates prompt more to lock in a guaranteed income for life

Annuity sales jumped 24 per cent last year as higher interest rates prompted providers to offer much better deals.

The number of sales hit 89,600, a 10 year high. And total sales were worth £7billion, a 34 per cent increase on 2023, according to the latest data from industry body the Association of British Insurers.

It notes that seven in 10 buyers shopped around and chose a different provider to the one where their pension fund was held.

There was an increase in sales of both joint life annuities, which generate a lower income but provide a pension to a surviving spouse, and escalating annuities which offer protection against inflation.

The ABI says the most common age to purchase an annuity continues to be 65, and more people bought an annuity after taking financial advice, rising to 36 per cent from 29 per cent in 2023.

Annuities provide a guaranteed income until you die, and recent moves in bond markets mean providers are still offering attractive deals on these products.

For £100,000 a healthy 65-year-old can currently lock in income of nearly £7,550 a year, according to best buy data:

In the same scenario and for the same price, a single life annuity that rises 3 per cent annually and has a five-year guarantee period – protecting your cash immediately after purchase – can generate just over £5,400 a year.

The same person with with a spouse three years younger could buy a joint life annuity with inflation protection but no guarantee that provides nearly £4,950 a year, according to the latest industry data from Hargreaves Lansdown.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says annuity sales are likely to have got off to a flying start in 2025 too.

‘After years in the doldrums, the market has been kick-started off the back of rising interest rates and soaring gilt yields [returns on UK government bonds] and this has tempted retirees back to the market,’

She adds: ‘More people are shopping around for the best annuity for their needs. Given that annuities cannot be unwound once bought this is vitally important.

‘Different providers offer different rates and not searching the market can leave you thousands of pounds worse off over the course of your retirement.’

Morrissey goes on: ‘There’s always a concern that people will go with the higher income offered by a single life annuity over a joint life, without realising that this could leave their partner with nothing when they die. 

‘The fact that joint life sales have increased is a real positive.

‘Similarly, the increase in inflation-linked products shows that our recent experience of high inflation is encouraging retirees to opt for an escalating annuity despite the lower starting incomes.’

She also notes that people who want to invest their pensions for the growth potential can also annuitise in slices throughout retirement, and doing this in later life when you are in poorer health means you could qualify for an enhanced annuity with higher payouts. 

Nick Flynn, retirement income director at Canada Life, says: ‘With people increasingly living longer lives, more individuals are seeking guaranteed income solutions, making annuities an attractive option. 

‘Furthermore, with pensions coming into the scope of inheritance tax from 2027, this could be an early sign that people are rethinking their financial plans for their retirement.

‘Our own experience indicates that larger pension pots are also being used to purchase annuities, as customers seek to take advantage of the current high rates available. 

‘It’s not uncommon to now see pension funds in excess of £500,000 looking to secure an annuity, dramatically increasing the average purchase price.’

> Read a This is Money guide to combining drawdown and annuities to maximise retirement income. 

What should you bear in mind when buying an annuity

Pension freedom reforms a decade ago have prompted most savers to keep their pension funds invested and live off withdrawals during old age.

Annuities were shunned for years due to poor rates and restrictive conditions, and after gaining a bad reputation on the back of annuity mis-selling scandals.

Now there has been a resurgence in annuity rates, here’s what to think about when deciding if they would suit you.

– You might be able to get an ‘enhanced’ rate if you wait to buy an annuity until you are older and your health has worsened.

– You can think again about your invest-and-drawdown strategy, and buy an annuity in tandem or as a replacement source of income later, but you can’t get out of an annuity once it is purchased.

– If you are healthy, the best rates are on single life, no inflation-link ‘level’ annuities, but the current cost of living pressures highlight how important it is to get some protection against rising prices.

– If you buy a single, not a joint life annuity, there will be nothing for your spouse if you die first, so consider what they will have to live on and discuss it with them before making a decision. Many widows and widowers discover their partner’s annuity choice has left them with no income after their bereavement, forcing them to live on meagre state benefits.

– Consider buying an annuity with a ‘guarantee period’, which protects against the loss of all or most of your purchase money if you die shortly afterwards.

– If you need to buy a long-term care annuity or immediate needs annuity to cover your own or a loved one’s care costs, and the money is paid direct to the firm providing care, that income will be tax free.

– You should shop around for the best deals. The free Government-backed Money Helper service has an independent annuity comparison tool here.