The total value of premiums paid into individual pension annuities rose by 4% to £7.4 billion in 2025, marking the highest annual level since pension freedoms were announced in 2014, according to data from the Association of British Insurers.
The rise in overall value comes despite a slight fall in the number of annuities sold, which dipped 2% year-on-year to 87,600.
The ABI said the contrast shows people are annuitising larger pension pots to secure an income for life.
Sales of annuities over £250,000 jumped by 31%, while sales of annuities valued at over £500,000 surged by 54%. This increase has driven the average annuity value to £84,000, passing £80,000 for the first time.
The higher value of premiums is paired with an 8% rise in the number of people 70 and over buying an annuity suggesting those in later life are looking for stability while making the most of the attractive rates on offer.
The data showed that escalating annuities were one of the strongest areas of growth, with more customers looking for protection against the erosion of income over time, including through inflation linked options. Sales of escalating annuities increased to just over 18,000 in 2025, up 10% from 2024 and the highest level recorded since 2013.
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.”
Clare Moffat, pensions and tax expert at Royal London, said: “The increase in the total value of annuity premiums in 2025 shows that annuities do have their place. Interestingly, people often say they don’t want an annuity, but when asked what they would like from a retirement income product, they list factors like certainty, simplicity, an income that will last as long as they do, and protection for their dependents. And that description sounds a lot like an annuity.”
Moffat said there has been an increased interest in using annuities for inheritance tax planning as people brace themselves for changes to inheritance tax and pensions next April.
David Cooper, director at Just Group, commented: “The total value of annuity premiums rose to another post-‘pension freedom’ high in 2025, driven by retirees taking advantage of attractive rates available through the year. A regulatory focus on sustainable income and avoiding poor outcomes in retirement is also prompting an adviser shift towards incorporating guaranteed income options in retirement advice alongside other assets.
“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.
“We are optimistic for further growth in the annuity market, as increasing numbers of savers reach retirement with defined contribution pensions and seek options that give them the financial peace of mind that comes from receiving a secure flow of income for the rest of their lives.”
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