Demand for annuities has quadrupled among individuals over 75 in the last two years, according to new data from Standard Life. This surge is attributed to robust annuity rates and the impending inclusion of unspent pension pots in inheritance tax calculations from April 2027.
An annuity allows individuals to convert their pension pot into a guaranteed retirement income. This conversion effectively leaves no pension pot remaining to be subject to inheritance tax upon death. Standard Life reported that the percentage of individuals over 75 seeking annuity quotes rose from 1.3% to 5.5% between 2024 and 2026, indicating a shift in retirement planning strategies. Furthermore, quotes for annuities valued at £1 million or more more than doubled during the same period. The actual payout amounts for annuities have also increased, rising by 14% from 2025 to 2026, from £91,000 to over £100,000.
Pete Cowell, head of annuities at Standard Life, noted that these trends reflect evolving retirement needs and planning behaviors. "The forthcoming inclusion of pensions within inheritance tax is prompting many to revisit how they use their pension savings, and annuities are one of a number of options available," he stated.
Annuity products provide a guaranteed income for life or a specified period, with options for additional protections such as passing income to a surviving spouse. The current appeal of annuities is further enhanced by rising annuity rates, which offer a better return on investment, and the looming inheritance tax on pensions. Inheritance tax applies to estates valued above £325,000 for a single person, a threshold that is expected to bring more individuals into the tax net. Converting a pension pot into an annuity can reduce the taxable value of an estate, although complex inheritance tax rules mean professional financial advice is recommended.
Despite the growing interest, a significant portion of the population remains unclear about annuities. A report by the Second Pensions Commission indicates that annuities are most popular among older adults, those with larger pension pots, higher income levels, and individuals who have sought financial advice. However, the same report suggests that annuities are perceived as offering poor value and lacking flexibility.
Data from Standard Life in 2025 indicated that while awareness of annuity benefits is growing, most individuals over 50 are still uncertain about their flexibility. Only 37% of this demographic understood that a full pension pot is not required to purchase an annuity, an increase from 31% in 2024. Awareness of spousal benefits and the compatibility of annuities with income drawdown also remains low, with only 38% and 35% of those over 50 aware, respectively. Income drawdown involves taking funds directly from a pension pot upon retirement.
Consumer champion Which? reported that comprehension of annuities is even lower among those not yet retired, with 52% admitting they do not know what an annuity is. A quarter of respondents mistakenly believed annuities were related to equity release, confusing them with products that help access home equity.
Experts emphasize the importance of professional financial advice to fully understand how annuities fit into a comprehensive retirement and inheritance tax plan. Services exist to match individuals with financial professionals and pension experts who can compare annuity providers and rates.