UK sales of individual annuities are on track for their strongest year in a decade, driven by higher interest rates and new financial regulations that are drawing people back to retirement products offering guaranteed income.
Insurance companies sold £3.6 billion worth of individual annuities in the first half of 2024, a more than 50 percent increase compared to the same period last year, according to the Association of British Insurers.
This surge puts the market on pace for its best performance since 2013—the year before then-Chancellor George Osborne’s “pension freedoms” Budget transformed the UK’s retirement landscape by reducing taxes on pension withdrawals.
The spike in sales was evident in the interim results reported this month by some of the UK’s largest insurers. FTSE 100 company Legal & General saw an additional £1.2 billion in premiums from individual annuities, following a record-breaking year in 2023.
“Last year was already impressive, and what’s remarkable is that this year we’ve doubled our first-half performance compared to last year,” said CEO António Simões in an interview with the Financial Times.
He noted that more people are opting to purchase an individual annuity with part of their pension pot, alongside other options like drawdown products, where income is taken from a still-invested fund.
Aviva CEO Amanda Blanc commented that individual annuities are “making a comeback” after falling out of favor due to low interest rates and pension freedoms. She expects the market to keep growing, adding, “While interest rates may decrease, they likely won’t return to previous lows.”
Annuity rates, which are tied to government bond yields and reflected in insurers’ pricing, plummeted during the low-interest rate era, serving as a key catalyst for Osborne’s pension reforms.
According to Hargreaves Lansdown’s annuity comparison service, a healthy 65-year-old with a £100,000 pension pot can currently secure a single-life, level annuity paying up to £7,100 annually, with a minimum payout period of five years. Just four years ago, this figure was around £4,700.
In 2013, insurers sold nearly £12 billion in individual annuities. David Richardson, CEO of Just Group, believes the individual annuity market could eventually surpass that level, citing the increasing size of defined contribution pension pots. “There’s no reason to see that as a ceiling,” he said. “The amount of [DC] money flowing into retirement will continue to grow each year.”
One contributing factor is the new consumer duty regulation, which requires advisers to prioritize the best outcomes for customers. Insurers say this has led to a renewed focus on guaranteed-income products.
Today, retirees often opt for a combination of tax-free cash, some drawdown income, and an annuity purchased later in their retirement to secure greater certainty, according to industry executives.
Yvonne Braun, director of long-term savings policy at the ABI, emphasized the importance of access to appropriate support to help people make informed choices. She urged the Financial Conduct Authority to use its ongoing review of the boundary between retirement guidance and financial advice to “create more opportunities” for individuals to receive support in their retirement planning.