Pension annuity gross sales hit file as common pot exceeds £80,000 | Pensions

The federal government’s “inheritance tax raid” on pensions has helped drive gross sales of retirement annuities to new highs.

Business information this week revealed they loved a “record-breaking” 2025, with gross sales rising by 4% to £7.4bn and the common quantity invested in an annuity surpassing £80,000 for the primary time.

A few of this enthusiasm for what many individuals historically seen as a uninteresting, poor worth product, has been put all the way down to people who find themselves eager to make sure that no extra of their money than is important leads to the palms of HM Income and Customs. As well as, many are looking for some certainty in turbulent occasions.

An annuity is a product that converts a person’s pension pot into a daily, assured earnings for the remainder of their life (or for a set time period). They pay a life insurance coverage firm a lump sum, and, in trade, it ensures a daily payout.

Demand plummeted after the “pension freedoms” launched in 2015 meant folks not needed to take one out. However adjustments to inheritance tax (IHT) on pensions introduced by Rachel Reeves in her October 2024 finances helped give them a brand new lease of life.

She stated cash left in an outlined contribution (AKA cash buy) pension after somebody’s demise shall be pulled into the IHT web from April 2027. All non-public pensions, and most office schemes, are outlined contribution.

The adjustments imply “unused” pension financial savings may very well be taxed as a part of somebody’s property in the event that they exceed the IHT threshold. Unused funds are cash in a pension pot that has not been used to say an earnings – corresponding to shopping for an annuity.

Commenting on the information issued by the Affiliation of British Insurers, Clare Moffat on the insurer Royal London stated: “With adjustments subsequent yr to inheritance tax and pensions, there was an elevated curiosity in utilizing annuities for IHT planning.”

Annuities now additionally provide higher worth than they used to. Marianna Hunt on the funding agency Constancy Worldwide stated its current information confirmed {that a} 66-year-old in good well being with a £300,000 pension pot may purchase a single-life annuity paying £22,440 a yr – a charge of about 7.5%.

“5 years in the past, charges had been nearer to 4percentto five%, delivering roughly £13,500 from the identical pot. That’s a considerable uplift in assured earnings,” she added.