Demand for annuities among UK retirees is surging, driven by attractive interest rates and upcoming changes to inheritance tax (IHT) rules on pension pots. Standard Life reports a quadrupling in the proportion of people over 75 seeking annuity quotes in the last two years, from 1.3% to 5.5%. Quotes for annuities worth at least £1 million have more than doubled between 2024 and 2026, indicating a shift towards higher-value products and a more strategic approach to retirement planning as the April 2027 IHT changes loom.
The average annuity premium paid out by Standard Life has increased by 14% year-on-year, from approximately £91,000 in 2025 to over £100,000 in 2026. Industry-wide data shows annuity sales reached a record £7.4 billion in 2025, a 4% increase, with the average amount invested in an annuity surpassing £80,000 for the first time. Despite a 2% decrease in the number of annuities sold (to 87,600), the increase in the average value reflects a trend of retirees converting larger pension pots into guaranteed income.
The appeal of annuities has also been bolstered by their ability to help retirees mitigate inheritance tax. With IHT rules set to apply to unused pension pots from April 2027, annuities allow individuals to convert their pension into a guaranteed income, which then reduces the taxable estate. Experts note this can push effective marginal tax rates towards 89% for retirees in certain scenarios, making annuities a tax-efficient vehicle. For example, a healthy 65-year-old could receive an annual income of £7,936 from a £100,000 pot with a single-life level annuity.
This resurgence marks a significant shift, as annuities had fallen out of favor after the 2015 pension freedoms and a period of low interest rates. However, with rates now higher and the introduction of IHT on pensions, annuities are being re-evaluated for their certainty, simplicity, and inflation protection options. Sales of escalating annuities, which offer inflation-linked payments, increased by 10% to over 18,000, highlighting retirees' desire for stability and protection against inflation.
The trend indicates a move towards continuous portfolio review in retirement rather than a one-off decision. Analysts predict demand will continue to grow as the 2027 deadline approaches, with nearly 50,000 people estimated to face higher IHT once the rules change. This shift is reshaping the UK retirement market, with insurers seeing increased sales volumes and annuities being recognized as a valuable tool for future financial planning and tax efficiency.
