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Sales of annuities in 2023 hit their highest levels since the introduction of pension freedoms in 2014, research from the Association of British Insurers (ABI) has found.
ABI found sales were £1.5 billion in the last quarter of the year, after a strong third quarter when sales were £1.4 billion.
The number of annuities bought rose by a third to 72,200 as interest rate hikes led to providers offering much better deals.
Annuities provide a guaranteed income until you die.
But they were shunned for years due to poor rates and restrictive conditions, and after gaining a bad reputation on the back of annuity mis-selling scandals.
Figures from Hargreaves Lansdowne show that currently, a 65-year-old with a £100,000 pension can get up to £7,117 per year from an annuity.
On average there were 3.3 quotes per person in January 2024 up from 2.9 in January last year, indicative of people shopping around for the best deal.
Nine in 10 applications were on an enhanced basis.
Jack Williams, head of pensions and retirement, Hargreaves Lansdown explained the days of soaring annuity rates may be behind us for now, but the market remains buoyant with strong interest from people looking to secure a level of guaranteed income in retirement.
He said: “The relative calm we’ve seen as annuity rates have settled in recent months has encouraged people who otherwise may have hesitated to take the plunge for fear of missing out on a better rate later to take a look now.
“The average number of quotes people are generating is also on the rise, showing a willingness to look across the market to make sure they are getting the best product and rate for their needs, with nine in 10 people using our comparison service qualifying for an enhancement based on lifestyle or health.
“We are also seeing people use more of their pension to convert to income. With inflation on the way down and interest rate cuts potentially feeding through in the coming months, annuities look better value.”
For anyone considering whether to buy an annuity – or concerned about whether they are flexible enough to meet their needs – it is worth noting that individuals can slice and dice their pension and annuities in chunks throughout their retirement.
Britons can build guaranteed income as their needs evolve while leaving some of their pension invested where it can continue to grow.
Savers will benefit from higher annuity rates as they age and potentially improved enhancements depending on their wealth.
The pension freedom reforms in 2015 prompted most savers to keep their funds invested and live off withdrawals instead, despite the financial market risk involved.
However, the recent run of interest rate hikes to combat inflation means annuity providers can afford to fund much more attractive deals, prompting a resurgence in sales.
