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Once considered by many as an outdated and unattractive option for those entering retirement, annuities are now seeing a powerful resurgence.
According to latest data from the Association of British Insurers (ABI), annuity sales grew by 4% to £7.4 billion in 2025, their highest annual level since pension freedoms were announced more than a decade ago in 2014.
Demand for higher-value annuities has surged, with sales above £250,000 up 31% and those over £500,000 rising by 54%. This has pushed the average annuity size to £84,000, the first time it has exceeded £80,000, representing a 7% year-on-year increase.
Pete Cowell, Head of Annuities at Standard Life, said: “For many, the question is no longer if to annuitise, but when and by how much. For the 99% of over‑50s who want income security at the centre of their retirement planning, a lifetime annuity can deliver exactly what they’re looking for: a guaranteed income that they can’t outlive – either as part or all of a solution.
“With more people reaching retirement without a defined benefit pension, and new ways emerging to build guaranteed income into a retirement plan, it’s clear that annuities have firmly reclaimed their place back in the mainstream of the pensions landscape.”
But does the fact that a wider range of people appears to be taking advantage of competitive annuity rates mean that an annuity could be right for you? Here, we look at why values have soared, and some of the key considerations to weigh up before locking in your retirement income.
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If you’re considering seeking professional financial advice on the options available to you, nationwide advice firm HUB Financial Solutions is offering you a free initial consultation with an expert retirement specialist. There’s no obligation; it’s to help you understand your options and how our services work. If you choose to receive paid-for regulated advice, we’ll explain how that works and the fees involved.
HUB Financial Solutions is rated ‘Excellent’ on Trustpilot (Mar 2026). With investing, your capital is at risk.
Why annuity demand is booming
Following the introduction of the 2015 Pension Freedom reforms, annuities fell out of favour. Many retirees preferred the flexibility of income drawdown, where your retirement savings remain invested and you draw an income from them as and when you need to. You can read more about drawdown in our guide What is pension drawdown and how does it work? Annuities, in contrast, were often viewed as rigid and of poor value.
But the market has subsequently shifted dramatically, with annuities increasingly the preferred option for retirees wanting a secure income when they stop working.
Several factors are behind annuities’ growing popularity. These include higher interest rates and gilt yields, which annuity rates are closely tied to. As yields have risen, so too have the incomes insurers can offer retirees who want to use some or all of their pension to buy an annuity. Even the Bank of England’s recent base rate reductions so far have done little to dent strong annuity rates.
For example, in August 2021, a 65-year-old with a £100,000 pension pot could secure a retirement income of just £4,943 per year with a single life level annuity and a five-year guarantee. Fast forward to May 2026, and the same-sized pension could be used to generate £7,916 annually from an annuity.
The popularity of annuities has also been impacted by Budget changes and inheritance tax concerns, which you can read more about in our article Inheritance tax and pensions: what’s changing in 2027.
In a nutshell, Labour’s first Budget in October 2024 included major changes to the treatment of pensions, due to take effect from April 2027. Defined contribution pensions from this date will for the first time fall within the scope of inheritance tax (IHT), meaning they can no longer serve as a way to transfer wealth to loved ones free of IHT. In some cases, beneficiaries could face combined tax bills of up to 70% on inherited drawdown pots. As a result, more retirees are prioritising guaranteed income for themselves over leaving pensions to loved ones to inherit.
These shifts mean annuities are now appealing to a wider range of savers – including those with larger pots who previously might have steered clear.
How annuities work
An annuity is a contract with an insurance provider: in exchange for some or all of your pension pot, you receive a guaranteed income for life (or for a fixed term). The income usually stops when you die, though options exist to provide for a spouse or to guarantee payments for a certain period afterwards.
The main attraction of annuities is the security they provide. Unlike drawdown, where the income you receive depends on market performance, annuities can provide you with peace of mind that you won’t outlive your savings. This can make them particularly valuable for covering essential expenses such as housing, utilities, and food. You can learn more about how they work in our guide Annuities explained.
However, an annuity won’t be right for everyone and once purchased, you can’t change your mind. This means that if you are convinced you want to buy one, it’s vital to choose the right product for your needs.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Once bought, an annuity cannot be unwound and you must consider what you need very carefully. If you are married or in a civil partnership you may decide to opt for a joint, rather than single life annuity so your partner is taken care of. You also need to factor in the impact of inflation over the long term into your plans. Starting incomes from inflation-linked annuities tend to be much lower than level products but over time they might be the right choice.”
According to the ABI’s data, sales of escalating or inflation-linked annuities increased to more than 18,000 in 2025, up 10% from 2024 and the highest level recorded since 2013.
Here are some of the different annuity options that are available:
- Single vs joint life annuity: A single life annuity stops when you die, while a joint life annuity continues paying your partner a percentage of your income after your death. Joint products typically pay less but provide important financial protection when you’re no longer around.
- Level vs inflation-linked: Level annuities pay a fixed income, which won’t change over time. Inflation-linked annuities pay out a lower level of income initially, but increase each year to keep pace with rising living costs. Learn more in our guide Should I go for a level or an inflation-linked annuity?
- Guarantee periods: Depending on which annuity you choose, you may be able to add a guarantee (often five or 10 years) so that if you die early, payments will continue to be made to your beneficiaries for the remainder of that period.
- Health and lifestyle factors: Smokers, people with certain medical conditions, or those with shorter life expectancies may qualify for an “enhanced” or “impaired” annuity. This type of annuity offers a higher income to people whose health and lifestyle choices may mean they have a reduced life expectancy. Learn more in our article Could your medical condition mean more money in retirement?
- Partial annuity: You don’t need to commit your entire pension pot to an annuity. Many people buy annuities in stages, keeping some funds invested in drawdown so that they can balance security with flexibility.
If you’re not sure whether an annuity is right for you, many people find the best approach may be a combination of strategies. For example, using part of a pension pot to buy an annuity can provide peace of mind that essential outgoings will be covered, while keeping the remainder invested in drawdown offers flexibility and the chance for growth.
This “mix and match” approach helps protect against inflation while ensuring a reliable baseline income. It also allows retirees to adapt as circumstances change, rather than committing everything up front. Find out more in our guide Annuity vs drawdown: which is right for you?
Final thoughts: should you buy now?
Annuities are enjoying a renaissance. Rising gilt yields, higher interest rates, and looming tax changes have combined to make them more attractive than they’ve been in over a decade. If you value security and want to lock in near-record rates to cover your essential expenses, then now could be an excellent time to consider an annuity. But don’t rush: take your time to research your options and to consider what’s right for you based on your long-term retirement goals.
Remember too that annuities are not one-size-fits-all. They often work best as part of a broader retirement strategy, so before making any decisions, it’s crucial to assess your needs, speak to a financial advisor if you need help and shop around for the best deal.
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If you’re considering seeking professional financial advice on the options available to you, nationwide advice firm HUB Financial Solutions is offering you a free initial consultation with an expert retirement specialist. There’s no obligation; it’s to help you understand your options and how our services work. If you choose to receive paid-for regulated advice, we’ll explain how that works and the fees involved.
HUB Financial Solutions is rated ‘Excellent’ on Trustpilot (Mar 2026). With investing, your capital is at risk.
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