Go back to insightsAfter 12 years out of the spotlight, annuities are back
When it comes to taking income in retirement, annuities are making a clear comeback and it’s easy to see why.
Source: ABI
In 2014, the then Chancellor, now better known as a podcaster, George Osborne, surprised everyone by unveiling a Budget announcement that few had predicted. He removed the longstanding expectation that most people with personal pension plans should turn them into an annuity at retirement.
Osborne’s socalled ‘pension freedoms’ sent shockwaves through the pensions industry and came close to wiping out the annuity market overnight. Life insurance companies saw their share prices tumble as commentators asked the obvious question: “Who will choose an annuity now?”
As the graph illustrates, annuity sales dropped sharply from almost £7 billion in 2015 to £4 billion the following year, then remained flat until a revival began in 2023. This recovery coincided with annuity rates rising from historically low levels, driven by increases in long term interest rates.
The latest figures from the Association of British Insurers (ABI), covering 2025, show £7.4 billion invested in annuities last year — around £0.5 billion more than in 2014. However, when adjusted for cumulative inflation since 2014 (around 40%), real terms annuity sales remain significantly lower.
Interesting trends from the ABI data:
- Large annuity purchases are rising:
Sales of annuities priced above £250,000 increased by 31%, and those over £500,000 rose by 54%. - Older retirees are buying more annuities:
Sales to customers aged 70 or over rose by 8%. - Inflation linked annuities are gaining traction:
Escalating annuities, which increase each year, saw a 10% uplift and now represent one in five annuity sales.
The surge in higher value purchases may be early evidence of people responding to the government’s proposal to bring unused pension pots into the scope of inheritance tax (IHT). From 6 April 2027, where death occurs at age 75 or over, an untouched pension could face an effective tax burden of 64% or more (40% IHT plus up to 40% income tax).
Given such heavy taxation, and the complexities of managing drawdown and estate administration, a lifetime annuity with no death benefit can look increasingly attractive. For a typical 65 year old today, an escalating annuity could start at more than 5.25%, rising annually with retail price index (RPI) inflation.
The value of your investment and any income from it can fall as well as rise, and you may not get back the amount you invested.
Tax treatment varies according to individual circumstances and may change.
The Financial Conduct Authority does not regulate tax advice.
2nd April 2026