By Clare Yates
4 min read
The latest figures show that 2025 was a standout year for annuities. According to the Association of British Insurers (ABI), pension savers used £7.4 billion of their retirement pots to buy annuities, which is the highest level since 2014 and a 4% increase on 2024.
That comparison with 2014 is important. Pension freedoms were introduced that year, giving people far more flexibility in how they turn their pension savings into income. Instead of being guided mainly toward annuities, savers suddenly had a range of choices. The latest data shows that annuities are very much on people’s radar.
The ABI figures also highlight a clear shift in the size of the pension pots being used to buy annuities:
Sales of annuities purchased with more than £250,000 rose by 31%.
Sales of annuities purchased with more than £500,000 increased by 54%.
The average annuity purchase climbed to £84,000, a 7% rise compared with 2024.
There was also an increase in older retirees choosing to secure guaranteed income. The number of people aged 70 and above who used some or all of their pension savings to buy an annuity rose by 8% in 2025.
Escalating annuities show robust growth
After a period of high inflation, it’s not surprising that escalating annuities have seen strong demand. These products increase the income you receive each year, either by a fixed percentage or in line with inflation.
In 2025, more than 18,000 escalating annuities were purchased, which is a 10% rise on 2024 and the highest level since 2013.
Rob Yuille, Head of Long-Term Savings at the ABI, commented:
“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. With pensions coming in scope of inheritance tax from April 2027, choosing an annuity means a guaranteed income for life, with the option of providing for loved ones without worrying about potentially penal tax impacts.”
A quick refresher: how annuities work
If you are weighing up your retirement income options, it helps to understand the basics of how annuities operate. When you buy an annuity, you take all or a portion of your ‘defined contribution’ (DC) pension pot and exchange it for a guaranteed income.
Your income can last for the rest of your life or for a fixed period, depending on the type of annuity you choose. That choice, as well as factors including your age, health, pension size and the specific features you select, all influence how much income you receive. You can explore the different options on our dedicated annuities page.
One of the main reasons annuities remain popular is the certainty they offer. With income drawdown, your income is influenced by investment performance, which means it can rise or fall.
An annuity provides a fixed income that you can rely on, regardless of what happens in the markets. If you want to see how current market conditions could affect your retirement income, our annuity rates page is a useful place to start.
Strong annuity rates fuel demand
The great news is that annuity rates remain close to record highs. The best rate available on 1 February 2026 was 7.62% for a healthy 65-year-old. When rates are strong, each pound of your pension pot can secure more guaranteed income, whether for life or for a fixed term. This is likely to be one of the key reasons behind the growing interest in annuities throughout 2025.
If you are thinking about buying an annuity, our annuity partners can talk you through your options and help you understand how much guaranteed income you could secure based on today’s annuity rates.
Source: Savers used £7.4 billion of their retirement pots to buy annuities, Association of British Insurers (ABI): Larger pension pots drive record-breaking year for individual annuity premiums. Date accessed 19 February 2026.
