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Annuity sales soared to their highest level in a decade in 2024, as high rates and economic uncertainty drove people towards the products and their guaranteed income streams.
Insurers sold £7bn in annuities last year, according to the Association of British Insurers, up 34 per cent from 2023 and the highest figure since George Osborne’s “pensions freedoms” Budget in 2014. The number of contracts sold rose by 24 per cent last year to 89,600, a 10-year high — but still only a quarter of the 2013 figure.
“With ongoing global turmoil and economic uncertainty, there’s an increasing desire for people looking for stability in retirement,” said Lorna Shah, managing director of retail retirement at insurer Legal & General.
Sales plummeted in 2014 after then-chancellor Osborne removed long-standing restrictions that pushed most pensioners to annuities.
The number of contracts sold dipped to an all-time low of just under 50,000 in 2020, down from about 350,000 in 2013.
But resurgent interest rates, together with a longer term fall in the number of people on generous defined benefit pensions, have lured savers back to annuities over the past two years.
Despite the rise, annuity purchases continue to make up only a small proportion of the ways in which people access pension wealth. They were most popular among people with pension pots worth between £50,000 and £250,000.
“People think it’s a choice between an annuity or income drawdown — it’s not an either or, you can incorporate both of them,” said Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.
She said that so-called blended solutions might appeal to someone who intended to “step back from work, maybe work part-time”. Retirees could “annuitise in slices, taking smaller amounts out of their pension and using it to “secure some guaranteed income from an annuity,” she said. By leaving the rest invested, they would also have the opportunity to grow their pension pots.
Morrissey explained that annuities grew increasingly attractive for older pensioners. Someone who annuitised a £100,000 pension pot at the age of 65 would receive an annual income of £6,309 on a single life, level annuity with a five-year guarantee.
An individual who took out the same annuity at the age of 75 would receive £9,368 a year, according to Hargreaves Lansdown’s “best annuity rates” data for this week.
“If you remained invested in income drawdown at the age of 75, your portfolio would have to work very hard from an investment point of view to generate those returns,” said Morrissey.
Rob Yuille, the ABI’s head of long-term savings policy, noted that more people were “taking advantage of professional advice before purchasing an annuity, and are exploring the market to find the best [option]”.
Thirty six per cent of buyers took financial advice before buying annuities, up from 29 per cent in 2023, according to the ABI. Seven in 10 took out an annuity from a different provider to the one they held their pension savings with.
Some advisers remained cautious about encouraging their clients to purchase annuities. “The problem with an annuity is that once you’ve bought it, you can’t tweak it,” said Daniel Hough, financial planner at RBC Brewin Dolphin. “The top rates are good initially, but once you build in additional features they become less attractive.”
Unlike pension pots, annuities usually can’t be passed on as an inheritance. Joint-life annuities allow spouses to receive an income after one person in a marriage dies, but the rates on offer are far lower than single-life annuities.
Nevertheless, annuities providers say there are underlying structural changes drawing people to the products — beyond high interest rates. The phasing out of defined benefit pension schemes — which offered pensioners a guaranteed income until they passed away — meant that the next generation of retirees would have to manage their retirement income more carefully, said Pete Cowell, head of annuities at Standard Life.
Annuity rates are driven by a number of factors, including long-term prospects for base rates. Hargreaves Lansdown’s Morrissey said that while interest rates were expected to “pull back over the next year or so, I can’t imagine us returning to the mega-low rates [of the 2010s] any time soon”.
