Tax and targeted support may help boost sales of annuities even further over the next few years, according to Nick Flynn, retirement income director at Canada Life.
Data from the FCA has shown that annuity sales have been rising as the inheritance tax changes to defined contribution pensions are set to come into force in April 2027.
For example, data from the regulator last year showed sales of annuities increased by 7.8 per cent from 82,061 in 2023-2024 to 88,430 in 2024-2025.
But according to Flynn, this interest will continue.
“As people get older, they become more focused on death and taxes,” Flynn said.
“There’s a clear shift towards using pensions during lifetime rather than passing them on inefficiently.”
Advisers report increasing client urgency around retirement decisions, with more individuals actively seeking to restructure pension assets.
Martin Rayner, mortgage broker and financial adviser at Compton Financial Services, said much of the increased demand would depend on education around how annuities can be used in retirement planning.
“Once clients understand the range of uses annuities can have, rather than seeing them as outdated products, I think we are likely to see a significant increase in demand over the coming years.
“It is important to dispel the myth that annuities are the “old way” of retirement planning. They are simply another tool in the retirement toolkit and, for the right client, can be extremely valuable.”
Annuity pricing remains closely tied to gilt yields, making the market highly sensitive to economic and geopolitical developments.
“Even small movements in gilt yields can shift pricing,” Flynn explained.
“It’s a very competitive market — if you’re not near the top of the rates table, you simply won’t get the business.”
To attract flows, providers are offering features such as rate guarantees — Canada Life currently offers a 45-day guarantee period — although this exposes insurers to market volatility.
However, he explained that the underwriting process has also evolved significantly, with advisers increasingly using digital quote comparison platforms.
“Advisers can now input client details and instantly compare outcomes across providers,” Flynn said.
“The days of long medical questionnaires and manual processing are fading — unless the case is particularly complex.”
Despite this progress, operational bottlenecks — particularly around pension transfers — remain a persistent industry challenge.
Wealth managers and providers re-educate
The influx of wealth managers into the annuity space is creating a re-education challenge across the market.
Advisers accustomed to drawdown strategies and platform-based investing are now having to reacquaint themselves with guaranteed income products.
“There’s a lot of relearning going on,” Flynn said. “What used to be seen as a simple product isn’t something many wealth managers have used in practice for years.”
Providers, too, have had to adapt quickly. Canada Life has tripled processing capacity in response to demand, upgrading systems to handle higher volumes and improve turnaround times.
Flynn explained that rather than a wholesale return to “annuitisation”, advisers were increasingly adopting partial or phased approaches.
He said it varied depending on the clients but particularly the non advised clients, they tend to want to “read the rituals” and there’s not a huge amount of financial education either.
“They maybe have a workplace pension of £80,000 and they’re going to get the state pension — that’s it and it’s simple stuff.
“But as soon as you start moving into the wealth type of clients, they’ve got maybe a couple of properties, a couple of different pensions, maybe some self-employed earnings, all these sort of things, this all completely different.
“That’s where you’re seeing phased chunks, retiring early, doing a bit of consultancy and.
“You can make a huge generalisation to put that the advised clients are acting differently to the knowledge wise clients and leaders.
“Neither is wrong, it’s just what they have.”
Meanwhile, Rayner noted that fixed-term annuities were also becoming more relevant for some clients.
“Fixed-term annuities can help bridge an income gap, for example between retirement and state pension age, while preserving future flexibility,” he said.
Elsewhere, Flynn explained that this “blend” of drawdown and annuity income is becoming central to retirement planning, particularly as sequencing risk and market uncertainty remain key concerns.
“The more sophisticated clients are taking chunks — maybe £100,000 or £200,000 — to secure income and reduce portfolio risk,” Flynn said.
“It makes client conversations easier when markets are volatile, because you’ve locked in part of their income.”
Regulation unlikely to tighten — for now
Despite rapid growth, Flynn does not expect imminent regulatory intervention.
The market’s transparency — particularly the dominance of best-rate selection — and increasing consumer awareness are helping to maintain competitive discipline.
However, he noted that future developments such as targeted support and evolving consumer duty expectations could reshape how annuities are positioned within advice.
Nouran Moustafa, practice principal and independent financial adviser at Roxton Wealth, said confidence was becoming a bigger driver of annuity demand than tax changes alone.
“For years, annuities were treated as the boring option after pension freedoms,” she said.
“Now, with better rates and more people worrying about making their pension last, guaranteed income is starting to look attractive.”
Moustafa added that targeted support could encourage more consumers to consider secure income products without requiring full financial advice.
“Many people do not need a lecture on every retirement option; they need a clear nudge that says: based on people in similar circumstances, you should at least consider secure income,” she said.
She added that while annuities are not suitable for everyone because flexibility is limited once purchased, they can provide retirees with greater certainty when used appropriately.
Rayner also said the inheritance tax changes could further accelerate demand.
“Some clients may choose higher guaranteed income and then pass on surplus income using the often overlooked ‘gifting out of surplus income’ exemption,” he said.
sonia.rach@ft.com
