More People Buying Annuities with Bigger Pension Pots

Sales of pension annuities have reached their highest point since 2014. People are using bigger pension pots to buy a guaranteed income that lasts their whole life. This offers more money certainty in retirement.
By Newsroom | Finance, UK |

Pension annuity sales have reached their highest point since the introduction of pension freedoms in 2014. This surge in activity is characterized by individuals converting larger pension pots into guaranteed lifetime incomes. The total value of premiums paid into individual pension annuities grew by 4% to £7.4 billion in 2025, marking a significant financial shift in retirement planning.

The Association of British Insurers (ABI) has reported record levels for individual pension annuity premiums in 2025. This marks the highest annual total since pension freedoms were introduced in 2014, a significant development in retirement income choices.

Pension annuity sales hit record as average pot exceeds £80,000 - 1

  • Premium Value: The total value of premiums paid into individual pension annuities in 2025 reached £7.4 billion, a 4% increase year-on-year.

  • Sales Volume: Despite the rise in value, the number of annuities purchased saw a slight decrease of 2%, totaling 87,600 in 2025.

  • Average Pot Size: This contrast indicates a clear trend: individuals are using larger pension pots to purchase annuities, seeking a stable, guaranteed income for life. The average pension pot used for annuities has now exceeded £80,000.

Factors Influencing the Annuity Boom

Several converging factors appear to be driving the increased interest and investment in annuities. The fundamental appeal of a guaranteed income, coupled with evolving economic and tax considerations, plays a pivotal role.

The Appeal of Guaranteed Income

An annuity converts a lump sum of pension savings into a regular, guaranteed income that lasts for the retiree's lifetime or a fixed term. This offers a predictable financial future, a stark contrast to market-dependent investment strategies.

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Pension annuity sales hit record as average pot exceeds £80,000 - 2

  • Certainty in Retirement: In an environment of shifting economic conditions, annuities provide a crucial element of certainty. This is particularly attractive for individuals approaching or in retirement who prioritize a reliable income stream.

  • Protection Against Longevity Risk: Annuities effectively hedge against the risk of outliving one's savings, ensuring a steady financial base regardless of life expectancy.

Evolving Economic and Tax Landscape

Recent and anticipated changes in economic conditions and tax policies are also influencing retirement decisions, making annuities a more attractive option.

  • Potential Inheritance Tax Impact: With pensions coming into the scope of inheritance tax from April 2027, choosing an annuity offers a guaranteed income for life with the potential to provide for loved ones without immediate, potentially penalizing, tax concerns. This suggests a strategic financial planning approach.

  • Favorable Annuity Rates: Some reports indicate that annuity products now offer better value than in previous years. While not explicitly detailed in all sources, the idea of "flex then fix" – using savings flexibly early in retirement and then securing guaranteed income at higher rates when certainty is paramount – is highlighted.

Industry and Expert Perspectives

Industry bodies and experts emphasize the significance of these trends and the need for a stable regulatory environment.

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Pension annuity sales hit record as average pot exceeds £80,000 - 3

"The figures highlighted a shift in retirement behaviour." - Rob Yuille, Assistant Director and Head of Long-Term Savings, ABI

Rob Yuille of the ABI notes that the data reveals a striking feature: the increase in the size of pots being annuitised, with people securing regular income at older ages. He stresses that regulatory stability is essential for pension schemes and insurers to navigate economic and policy changes, thereby giving members confidence in a secure retirement. Insurers, he adds, provide the scale necessary to support members throughout retirement and contribute to the economy through investment.

Key Takeaways and Future Considerations

The record-breaking year for annuity premiums signals a significant recalibration of retirement income strategies. Individuals are increasingly prioritizing guaranteed income and long-term financial security.

  • Shift in Behavior: The trend demonstrates a move towards annuitising larger pension pots to secure a dependable income stream for life.

  • Regulatory Importance: Industry stakeholders, like the ABI, underscore the critical need for a stable and clearly defined regulatory framework to support both pension schemes and individuals.

  • Strategic Planning: The interplay of market conditions, product value, and tax considerations appears to be driving this increased demand for annuities.

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The Association of British Insurers (ABI) data is central to this report, providing figures on annuity sales and premiums. The Guardian, Money Marketing, Actuarial Post, and Which? also offer reports and analysis that corroborate and contextualize these findings, detailing the mechanics and appeal of annuities in the current retirement landscape.

Frequently Asked Questions

Q: What is a pension annuity?
A pension annuity is when you use your pension savings to buy a regular income that you get for the rest of your life.
Q: Why are more people buying annuities now?
People are using bigger pension pots and want a sure income. Changes in tax rules might also make annuities more appealing.
Q: How much money are people spending on annuities?
In 2025, people spent £7.4 billion on annuities, which is more than in previous years.
Q: Are more people buying annuities or are the pots just bigger?
The total money spent on annuities went up, but the number of annuities bought went down a little. This means people are using larger pension pots to buy them.
Q: Is this good for people retiring?
Annuities offer a guaranteed income, which gives people certainty about their money in retirement. This can help them plan their finances without worrying about market changes.