Data from the Association of British Insurers (ABI) shows that larger pension pools will help drive total premiums paid out on personal annuities to rise by 4% in 2025 to £7.4bn, the highest annual level since pension freedoms were introduced in 2014.
Although there was a slight decline in the number of annuities sold, which fell 2% year-on-year to 87,600, there was still growth as more people purchased larger pensions to ensure lifetime income.
Meanwhile, sales of annuities over £250,000 increased by 31%, while sales of annuities worth over £500,000 increased by 54%. This takes the average annuity value to £84,000, above £80,000 for the first time, and represents an annual growth rate of 7%.
The increase in premium values was accompanied by an 8% increase in the number of people aged 70 and over purchasing annuities.
ABI noted that one of the strongest areas of growth by product type has been the growing growth of annuities, indicating that customers are increasingly seeking protection against the erosion of income over time, including through inflation-linked options. Increasing annuity sales will rise to just over 18,000 in 2025, up 10% from 2024 and the highest level since 2013.
Rob Yuille, Assistant Director and Head of Long Term Savings, said: “A striking feature of this year’s data is an increase in annuity amounts, coupled with people opting for a fixed income in old age. ‘Flex first, fixed’ is always a good idea, using savings flexibly in early retirement and then locking in guaranteed income at a higher rate when certainty matters most. Now that pensions are included in inheritance tax coverage from April 2027, choosing an annuity means guaranteed income for life, with the option to provide for loved ones without worrying about the impact of potential tax penalties.”
In addition, the ABI highlighted that bulk annuity activity will continue to be large by 2025, with £38.3 billion of defined benefit plans guaranteed by insurers providing long-term coverage to 332,500 people.
Although premiums are lower than in 2024 (£47.3 billion), the continued number of people buying annuities in bulk to gain long-term pension security remains significant.
Yuille added: “Insurers bring scale, which means they can support pension scheme members throughout retirement and support the economy through investment in housing, infrastructure and lending to UK business and government. As economic and policy conditions continue to change, a stable and clear regulatory framework following the Pensions Schemes Act is vital to giving schemes and their members confidence in a safe retirement.”