People are putting bigger amounts of cash into retirement annuities – with the average annuity passing £80,000 for the first time and sales of annuities for over £250,000 and £500,000 having jumped, according to the Association of British Insurers (ABI).
Annuities allow people to covert pension savings into a guaranteed fixed income when they retire, giving people certainty over the amount of money they will have to live on.
The ABI said that the total value of premiums paid into individual pension annuities grew by 4% annually to reach £7.4 billion in 2025 – the highest annual level since the pension freedoms, which gave people more flexibility over their pension pots, were announced in 2014.
Before the pension freedoms, people with a defined contribution (DC) pension were generally required to convert their retirement funds into an annuity, but under the freedoms people have had a wider range of choices over how they use the cash. There had been some controversy around people ending up with disappointing incomes from annuities.
The ABI said the increase in overall value of annuities comes despite a slight fall in the number of annuities being sold, which it said reflects people annuitising bigger pension pots to secure an income for life.
Sales of annuities over £250,000 rose by 31% annually, and sales of annuities valued at over £500,000 rose by 54%, the ABI said.
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% 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.”
Marianna Hunt, a personal finance specialist at Fidelity International, said higher rates have “significantly improved” the income that retirees can secure.
She said: “As of December 2025, a 66-year-old in good health with a £300,000 pension pot could buy a single-life annuity paying £22,447 a year, according to figures from our own wealth management team.”
Ms Hunt said that five years ago, rates would have delivered “roughly £13,500 from the same pot. That’s a substantial uplift in guaranteed income”.
She added: “These improved rates could explain why people are using larger pots to buy annuities.
“This could be particularly appealing for those who may have used drawdown earlier in retirement and are now looking for greater certainty.
“The rise in purchases among the over-70s is also understandable. As people move further into retirement, the appeal of a guaranteed income grows because an annuity removes investment uncertainty and protects against the risk of running out of money later in life.
“That said, annuities aren’t right for everyone. They offer less flexibility than drawdown and, depending on the type chosen, there may be limited ability to pass money on to loved ones.
“Our financial advisers at Fidelity International are seeing increasing interest from retirees in a ‘mix and match’ approach – using part of a pension pot to secure essential spending with an annuity, while leaving the rest invested for potential growth and flexible withdrawals.”
