The number of older retirees opting to purchase an annuity has increased significantly in recent months. According to new research from Standard Life, the proportion of annuity quotes for customers aged over 75 has more than quadrupled since 2024. The shift towards annuities is being driven by a combination of historically strong annuity rates and the impending changes to inheritance tax (IHT) rules on pensions.
Pete Cowell, head of annuities at Standard Life, said, "We’re seeing growing demand from older customers as well as an uplift in larger annuity cases, reflecting how retirement needs and planning behaviours are evolving. 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".
In this article, we explain why retirees are increasingly turning to annuities, how the new tax rules are influencing these decisions, and what the latest figures reveal about the market.
The rise in popularity of annuities
Standard Life's research highlights a clear change in consumer behaviour, particularly among wealthier retirees. The data reveals several key trends:
- Older buyers - The share of annuity quotes for customers aged over 75 has jumped from 1.3% in 2024 to 5.5% so far in 2026.
- Higher values - The proportion of quotes for annuities worth over £1 million has more than doubled over the same period.
- Larger premiums - The average amount spent on an annuity has increased by 14% year-on-year, rising from approximately £91,000 in 2025 to over £100,000 in 2026.
The data also revealed that almost 40% of financial advisers expect annuities to become increasingly popular due to the upcoming tax reforms.
Why are older retirees turning to annuities?
Annuities provide a guaranteed income for life in exchange for a lump sum from your pension pot. While their popularity waned following the introduction of the pension freedoms in 2015, they are currently experiencing a major resurgence. The renewed interest can be largely attributed to the government's decision to bring unspent pension pots into the scope of inheritance tax from April 2027.
Previously, leaving a pension untouched was widely considered a highly tax-efficient way to pass wealth down to beneficiaries. The forthcoming changes have prompted many people to rethink their retirement strategies. According to government estimates, around 10,500 estates will be brought into paying inheritance tax as a result of the new rules, with a further 38,500 estates facing higher tax bills. We cover these changes in more detail in our video below.
Using annuities for tax planning
As the April 2027 deadline approaches, some retirees are exploring annuities to manage their potential tax liabilities. Purchasing an annuity immediately reduces the overall value of an individual's estate. Furthermore, the guaranteed income generated by an annuity can sometimes be used for tax-efficient gifting. Under current rules, regular gifts made from "surplus income" can be exempt from inheritance tax, provided they do not negatively impact the giver's standard of living. By converting a portion of their pension into a steady income stream, retirees can potentially pass this wealth on to their heirs without triggering an IHT charge. We provide more tips in our article 'The 12 best ways to avoid Inheritance Tax'. However, the rules surrounding gifting and tax exemptions are complex, so it is always wise to seek independent financial advice before taking action.
Is an annuity right for you?
Annuity rates are currently offering some of the best returns seen in recent years, making them an appealing option for those seeking a steady, predictable income in retirement.
It is important to remember, however, that purchasing an annuity is a lifelong commitment and typically cannot be reversed once the cooling-off period expires. Whether an annuity is the right choice depends entirely on your personal circumstances, your health, and your long-term financial goals.
If you are unsure how the upcoming inheritance tax changes will affect your pension, or if you are considering purchasing an annuity, speaking to an independent financial adviser can help you navigate your options and build a resilient retirement plan. They can help you navigate intricate tax rules to ensure your strategy is both compliant and effective. If you don't currently have a financial adviser you can arrange a FREE Inheritance Tax Check* with a local, well-rated financial adviser unbiased.
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Shopping around for the best annuity rate
When purchasing an annuity, the income you are offered can vary significantly between providers. It is crucial that you do not simply accept the first offer from your existing pension company without checking what else is available. Because an annuity is a lifelong commitment, securing the highest possible rate from the outset can make a substantial difference to your total retirement income over the years. Taking the time to shop around and compare quotes across the whole of the market is essential.
If you have health conditions or lifestyle factors, such as smoking, you may also qualify for an enhanced annuity, which pays a higher income. For an idea of the returns currently available, take a look at our regularly updated guide on the 'Best annuity rates for £100,000'.
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