The total value of premiums paid into individual pension annuities rose by 4 per cent to £7.4bn in 2025, marking the highest annual level since pension freedoms were introduced in 2015, according to the latest data from the Association of British Insurers (ABI).

Despite an increase in total premiums, annuity sales fell slightly, down by 2 per cent year-on-year to 87,600.

The ABI said the divergence reflected a shift towards larger pension pots being annuitised, as retirees sought a guaranteed income in later life.

Sales of annuities worth more than £250,000 increased by 31 per cent in 2025, while those valued above £500,000 rose by 54 per cent.

As a result, the average annuity value climbed by 7 per cent over the year to £84,000, surpassing £80,000 for the first time.

The data also showed an 8 per cent increase in the number of people aged 70 and over purchasing an annuity, suggesting that more retirees were opting to lock in guaranteed income at older ages, potentially taking advantage of higher rates.

Escalating annuities - which provide an income that increases each year - were among the strongest areas of product growth.

Sales rose by 10 per cent to just over 18,000 in 2025, the highest level recorded since 2013.

Commenting on the figures, ABI assistant director and head of long-term savings, Rob Yuille, said: “A striking feature of this year’s data is the increase in the size of pots being annuitised, paired with people choosing to secure a regular income at older ages.

"It’s always been a good idea to ‘flex then fix’, using savings flexibly in early retirement, then locking in a guaranteed income at higher rates when certainty matters most.

“Now, with pensions coming in scope of inheritance tax from April 2027, choosing an annuity means a guaranteed income for life, with the option of providing for loved ones without worrying about potentially penal tax impacts.”

Industry figures added that the data underlined the continued resurgence of the annuity market.

Just Group director, David Cooper, noted that a regulatory focus on sustainable income and avoiding poor retirement outcomes was prompting an "adviser shift" towards incorporating guaranteed income options alongside other assets in retirement advice.

He also argued there was "a clear shift" at the upper end of the market among savers with larger defined contribution pots to prioritise security and lock in predictable income streams.

“We are optimistic for further growth in the annuity market, as increasing numbers of savers reach retirement with defined contribution pensions and seek options that give them the financial peace of mind that comes from receiving a secure flow of income for the rest of their lives,” he added.

Meanwhile, Standard Life head of annuities, Pete Cowell, suggested that the headline ABI figure did not reflect the full scale of activity across the individual annuity market.

He noted that while the ABI recorded £7.4bn of lifetime annuity sales in 2025, additional sales of other individual annuity products - such as fixed-term annuities and similar solutions - were estimated to total a further £1.1bn to £1.6bn.

Taken together, he noted, this would place the overall individual annuity market at between £8.5bn and £9bn for the year.

Cowell said the figures demonstrated that annuities were now “firmly centre stage” in retirement planning, pointing to the 4 per cent rise in premiums as evidence that more people were choosing to annuitise larger pension pots.

He also argued that the forthcoming inclusion of pensions within the scope of inheritance tax was a tailwind for wealthier retirees seeking to enjoy their retirement while managing their tax position.

In addition, he highlighted adviser sentiment, noting that 39 per cent of IFAs expected demand for annuities to increase.

According to Cowell, the debate for many retirees had shifted from whether to annuitise to questions around timing and allocation.

He stressed that for the vast majority of over-50s who prioritise income security in retirement, a lifetime annuity can provide a guaranteed income that cannot be outlived, either as part of a broader strategy or as the sole underpinning.

With more individuals reaching retirement without a defined benefit pension, and with new ways to incorporate guaranteed income into retirement strategies emerging, Cowell reiterated that annuities had re-established themselves as a mainstream component of the pensions landscape.

Alongside developments in the individual market, bulk annuity activity remained substantial in 2025.

Insurers secured £38.3bn of defined benefit (DB) liabilities during the year, providing long-term pension security for 332,500 members.

Although this was lower than the £47.3bn recorded in 2024, the ABI said the continued scale of transactions highlighted sustained demand for bulk purchase annuities.

Yuille added: “Insurers bring scale, which means they can provide support for pension scheme members throughout retirement, and support for the economy through investment in housing, infrastructure and lending to UK businesses and government.

“With economic and policy conditions continuing to shift, a stable and clearly defined regulatory framework following the Pension Schemes Bill is essential to give schemes and their members confidence in a secure retirement.”

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