Pension annuity sales hit record as average pot exceeds £80,000 | Pensions
The government’s “inheritance tax raid” on pensions has helped push sales of pensions to new levels.
Industry data this week It has announced a “record-breaking” year for 2025, with sales rising by 4% to £7.4bn and the average amount invested in annual income exceeding £80,000 for the first time.
Some of this enthusiasm for what many people traditionally see as a boring, low-value product has been attributed to people wanting to ensure that no more of their cash than necessary ends up in the hands of HM Revenue and Customs. Many people are also looking for some certainty in turbulent times.
An annuity is a product that converts an individual’s retirement income into regular, guaranteed income for the rest of their life (or a fixed period). They pay a lump sum to a life insurance company and are guaranteed a regular payment in return.
Demand fell after “pension freedoms” introduced in 2015 meant people no longer had to retire. But changes to inheritance tax (IHT) on pensions in Rachel Reeves’ October 2024 budget have helped give them a new lease on life.
It said money remaining in a defined contribution (aka money buyout) pension after a person’s death would be drawn into the IHT network from April 2027. All private pension schemes and most workplace plans are defined contribution.
The changes mean “unused” pension savings can be taxed as part of someone’s estate if they exceed the IHT threshold. Unused funds are money in the retirement fund that has not been used to claim income, such as purchasing an annuity.
Commenting on data published by the Association of British Insurers, Clare Moffat of insurer Royal London said: “With changes to inheritance tax and pensions next year, interest in using annuities for IHT planning has increased.”
Annuities now offer better value than before. Marianna Hunt, of investment firm Fidelity International, said her latest data showed that a 66-year-old in good health with a pension pot of £300,000 could buy a single-life annuity for £22,440 a year; this rate is approximately 7.5%.
“Five years ago, rates were closer to 4% to 5% and the same pot would yield roughly £13,500. This is a significant increase in guaranteed income,” he added.
