Retirees are rushing to lock in guaranteed income for life as fears grow over an inheritance raid that will pull pension pots into inheritance tax from 2027.
High‑value annuity purchases are surging as wealthier savers move to protect their income and, in some cases, pass on more to their heirs.
Chancellor Rachel Reeves announced pension savings will be subject to inheritance tax in 2024.
Sir Steve Webb, former pensions minister and now partner at LCP, said annuities are “enjoying a renaissance, particularly at the higher end of the market and among those who take financial advice”.
He said some retirees are using strong annuity income alongside other pension savings to create surplus income, which can then be gifted regularly under HMRC’s surplus‑income rules.
He continued: “The bounce back of annuity rates from the rock bottom levels seen in the 2010s has brought annuities back into favour, and the more recent decision to include pensions in the IHT (inheritance tax) net from April 2027 has added further impetus.
“Some savers are no doubt planning to combine a large annuity income with other retirement income to generate ‘surplus’ cash which they can gift on a regular basis to their heirs.
“Such gifts can potentially qualify for an IHT exemption under the rules around gifting from surplus income. However, anyone planning such a strategy needs to take good advice and keep good records to ensure that these gifts qualify under the quite strict HMRC rules.”
High-value annuity purchases surging as savers seek financial certainty ahead of major tax changes
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Sales of annuities worth more than £250,000 rose 31 per cent over the past year, according to the Association of British Insurers (ABI).
Purchases above £500,000 jumped 54 per cent. The shift towards larger transactions pushed the typical annuity purchase to £84,000 — the highest on record.
Industry data shows higher‑value savers are prioritising certainty amid economic volatility and the looming tax change.
Total annuity premiums reached £7.4billion in 2025, the strongest figure since pension freedoms were introduced.
The number of policies sold dipped slightly, but the value of purchases still rose four per cent.
Demand was particularly strong among buyers aged 70 and over, up eight per cent as older retirees locked in attractive rates.
The ABI also reported rising interest in escalating and inflation‑linked annuities.
Rob Yuille, assistant director and head of long‑term savings at the ABI, said the standout trend is “the increase in the size of pots being annuitised”, with more people choosing guaranteed income later in retirement.
HMRC said it is working to identify individuals receiving regular pension income | GETTY
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said average annuity purchase sizes have “rocketed”, rising from £62,301 in early 2021 to £162,729 in the first half of 2025.
She said the trend challenges the idea that larger pension pots always favour drawdown, helped by booming annuity rates driven by high interest rates and gilt yields.
Carolyn Jones, retirement director at Scottish Widows, said more people want “greater certainty in an unpredictable economic climate”.
David Cooper of Just Group said savers with larger defined contribution pots are increasingly prioritising security.
Experts say stronger annuity rates, economic uncertainty and the upcoming inheritance‑tax changes are reshaping how wealthier retirees structure their income.
