Annuity sales jump amid improved rates ‘as pension savers rush for security’

Sales of retirement annuities jumped by more than a third between 2022/23 and 2023/24, according to figures from the City regulator.

Annuities sales increased by 38.7%, from 59,163 in 2022/23 to 82,061 in 2023/24, the Financial Conduct Authority (FCA) said.

Retirees can use money from their pension pots to buy annuities, which give them a guaranteed income to live on.

Pension experts suggested that improved rates have helped to give annuities a popularity boost.

The FCA’s retirement income market data also showed that the total number of pension plans accessed for the first time increased by 19.7% in 2023/24 to 885,455, up from 739,652 in 2022/23.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “After years on the sidelines of the retirement income market, annuities are enjoying their time in the sun, as increasing interest rates pushed incomes skyward.

“The latest data on the (Hargreaves Lansdown) annuity comparison tool shows a 65-year-old with a £100,000 pension can get up to £7,146 per year from a single life level annuity. This is up around 43% on what they would have got just three years ago.

“We can expect this interest to continue as retirees decide to take the plunge sooner rather than later as incomes are set to fall back as the Bank of England cuts rates in the coming months.”

She added: “It’s great that people are getting good value from the annuity market, but the data also shows that people may not necessarily be opting for the best product for their needs.

“Annuity purchases were overwhelmingly taken on single life and level basis. This potentially means there are spouses that could be left with nothing when their partner dies.

“In addition, a sudden surge in inflation like we have seen in recent years could whittle away the purchasing power of that level annuity that looked such good value just a short time ago. It’s vital that you consider what you need from your retirement income and look across the market before deciding to purchase an annuity rather than taking the first or highest income offered.”

Stephen Lowe, group communications director at retirement specialist Just Group, suggested that people considering accessing pension money could take the free, independent and impartial guidance from the Government-backed Pension Wise service or consider enlisting the services of an annuity broker or a financial adviser who can help to scour the market.

Rob Hillock, a senior manager in the personal financial planning team at leading independent consultancy Broadstone, said: “The increase in annuity rates has fed through into a significant rise in sales through 2023/24 as pension savers rush for security and to lock in elevated rates.

“Given annuities offer peace of mind that retirees’ money will not run out during retirement it is perhaps unsurprising that more attractive rates have led to a surge of popularity.

“Overall, the picture in the retirement income market is of more people reaching retirement with defined contribution (DC) pensions leading to an increase in access and money flowing into these products.”