Annuity sales hit their highest level in a decade in 2024, with higher rates tempting retirement savers to swap their pension pots for a guaranteed income for life.
Insurers sold 89,600 annuities last year, up 24% on the year before – and the highest level since 2013, according to trade body the Association of British Insurers.
However, while sales are at their highest level in a decade, they remain around a quarter of what they were in 2013.
An annuity converts your savings into an annual pension, giving you a guaranteed income for life or a specified amount of time.
Until a decade ago, they were the default option for most retirees. However, sales plummeted after the 2014 Spring Budget, when then Chancellor George Osborne let over-55s access their pension savings flexibly without the need for an annuity.
It means that these days most retirement savers leave their pension money invested and live off periodic withdrawals from their pots.
However, resurgent interest rates mean that annuities are once again becoming an attractive option, with payouts far higher than they were a few years ago.
For example, a 65-year-old with a £100,000 pension could, at the time of writing, buy an income of more than £7,500 from a single life annuity. Three years ago, it was around the £5,000 mark.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says: “After years in the doldrums, the market has been kick-started off the back of rising interest rates and soaring gilt yields and this has tempted retirees back to the market. Total annuity sales topped £7bn.
“The bond market dramas at the start of the year may have been unsettling for investors, but they were a boom time for annuities.”
Things to consider
Once you buy an annuity, you can’t undo it, so you need to be certain that you’re making the right decision.
It’s also vitally important to shop around because each provider has different rates. If you don’t you could be thousands of pounds worse off over the course of your retirement.
It’s also worth noting that the longer you leave it before you buy an annuity, the more income you’re likely to receive.
For example, at the time of writing, a £100,000 single-life annuity for a 55-year-old paid nearly £6,400 a year, whereas an equivalent policy for a 70-year-old paid nearly £8,500.
Single life policies offer the highest rates, but they may not suitable if you want to provide for your spouse when you die.
Similarly, you’ll get a higher income if you choose an annuity that isn’t inflation-linked. However, the past two years have shown that it can be risky to assume that inflation will remain low.
You might also want to consider buying an annuity with a guarantee period, meaning the payments are made for a set period, no matter how long you live. So, for example, a policy with a five-year guarantee period will pay out for five years, even if you pass before then.
It’s also important to know that you don’t have to use your entire pension pot to buy any annuity. You could, for example, use some of your pot to buy an annuity, so that you have a guaranteed income for bills, and leave the rest invested.
Given the importance of the decision, it’s worth consulting your financial adviser to run through your options before you sign up for an annuity.
