Sales of retirement annuities reached a post-pension freedoms high last year, according to the Association of British Insurers (ABI).
Annuity sales soared in 2023 with a total sales value of £5.2 billion, a 46% increase compared with 2022, the association said.
This is the highest annual value since 2014, when the pension freedoms were announced which granted retirees more flexibility over how to access their retirement savings.
The freedoms, which came into force from 2015, gave over-55s a range of options over how to use their defined contribution (DC) pension pot. Generally, people can take up to 25% of their pension as a tax-free lump sum.
Before the freedoms, many would have bought an annuity, which provides retirees with a guaranteed income. Annuities had become controversial due to disappointing rates and concerns that not enough people were shopping around to get the best deals for their needs.
Securing a guaranteed income for life remains an important part of the mix of options for people to consider at and during retirement
Rob Yuille, ABI
The ABI suggested strong sales reflected higher interest rates, as more people have been looking to secure a reliable retirement income.
Last year included a bumper fourth quarter which saw £1.5 billion in annuity sales, off the back of a strong third quarter when sales totalled £1.4 billion, the ABI said.
Level-only annuities, which pay the same income every year but can be vulnerable to inflation, remained the more popular version of the product, the ABI said. This type of annuity has a higher starting income than an escalating annuity – which provides an income that increases every year.
Last year also saw nearly two-thirds (64%) of annuity buyers shop around – taking an annuity from a different provider to the one they held their pension savings with.
However, only 29% of customers who bought an annuity did so with the help of professional advice.
Rob Yuille, head of long-term savings policy at the ABI, said: “Securing a guaranteed income for life remains an important part of the mix of options for people to consider at and during retirement, and it’s great to see more people taking advantage of the protection they have to offer. It is also encouraging to see more people exploring the market to secure a higher income.
“However, we’d like to see more people taking advantage of professional advice and new forms of targeted support for consumers to ensure they can enjoy the best possible retirement.”
Stephen Lowe, group communications director at retirement specialist Just Group, said: “It’s good to see the majority are finding their way to the best deals which is a significant improvement on the past, but there are too many people still missing out.”
