Premiums paid into individual pension annuities rose 4% to £7.4bn in 2025, the highest annual total since the introduction of pension freedoms in 2014, according to new data from Association of British Insurers.
The increase came despite a 2% fall in sales volumes, with the number of annuities purchased slipping to 87,600, indicating that retirees are annuitising larger pension pots to secure guaranteed income.
Sales of annuities worth more than £250,000 rose 31%, while those above £500,000 jumped 54%. This pushed the average annuity purchase value to £84,000, up 7% year on year and above £80,000 for the first time.
The ABI said the data points to a growing trend among retirees to lock in certainty later in life. Purchases by people aged 70 and over rose 8%, suggesting older customers are taking advantage of improved annuity rates.
Demand also increased for products offering income protection over time. Sales of escalating annuities rose 10% to just over 18,000, the highest level since 2013, reflecting greater concern about inflation and income erosion.
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Rob Yuille, assistant director and head of long-term savings at the ABI, said the figures highlighted a shift in retirement behaviour.
“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,” he said.
“It has long made sense to use savings flexibly earlier in retirement and then fix income later, when certainty matters most.
“With pensions set to come within the scope of inheritance tax from April 2027, annuities can also offer a way to provide income certainty without worrying about potentially punitive tax outcomes.”
Alongside the individual market, bulk annuity activity remained elevated in 2025, with £38.3bn of defined benefit liabilities transferred to insurers, securing pensions for 332,500 members.
Although premiums were lower than in 2024 (£47.3bn), the ABI said bulk purchase annuities continue to play a crucial role in providing long-term retirement security.
Yuille added that regulatory stability will be key as pension schemes and insurers navigate shifting economic and policy conditions.
“Insurers bring scale that supports members throughout retirement and enables long-term investment in housing, infrastructure and UK businesses,” he said.
“A stable regulatory framework following the Pension Schemes Bill will be essential to maintain confidence in retirement outcomes.”
