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The value of pension savings being used to purchase annuities has reached its highest level in more than a decade, according to new data from the Association of British Insurers (ABI).
Despite a slight (2%) fall in the number of annuities sold, the average sum used to buy an annuity rose by 7% in 2025 to reach £84,000.
Here, we look at why more money is going into annuities and what to consider before opting for one to fund your retirement.
ABI data shows that the total value of premiums paid into annuities grew by 4% to £7.4bn in 2025. This represents the highest annual level since rule changes were announced in 2014 that gave people more choice for accessing their pensions.
The increase is driven by people using larger pots to buy annuities. Sales of annuities using pensions worth over £250,000 rose by 31%, while purchases with pots valued at over £500,000 increased by 54%.
There has also been an 8% rise in the number of people aged 70 and over buying an annuity. This suggests that those in later life are looking for the certainty of a guaranteed income – perhaps in addition to the flexibility of pension drawdown.
Annuity sales have been boosted in the past few years by a significant increase in annuity rates.
The highest annuity income on offer for a healthy 65-year-old with an initial pension pot of £100,000 is currently around £7,730 a year.
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Arranging an annuity involves swapping your pension savings for a guaranteed regular income that will last for the rest of your life.
How much income you'll get depends on the annuity rate offered by the provider you choose (given as a percentage, for example 6% a year) and the amount you're converting into an annuity (your initial pension pot).
Annuity companies consider the broader economic picture, as well as your personal circumstances, when deciding on your annuity rate.
Providers typically fund the income from their annuity products using returns from government bonds (known as gilts), which are considered low-risk investments. When the base rate is high, gilt yields tend to go up, which in turn pushes up annuity rates.
When deciding which annuity to choose, you'll need to think about whether you want protection against inflation.
ABI's data highlights the popularity of escalating annuities – where payments increase annually, as opposed to level annuities, where payments are fixed – suggesting more customers are looking for protection against the erosion of income over time.
The number of escalating annuities sold rose to just over 18,000 in 2025, up 10% from 2024, and the highest level recorded since 2013.
It's worth bearing in mind that opting for an escalating annuity means accepting a lower level of income at the outset, and it could take as long as 15 to 20 years for the overall income you've received to exceed what you would have got from a level annuity.
Once you buy an annuity, it can't be unwound, so it pays to do your research to make sure you get the right one for you.
If you want tailored recommendations about what type of retirement income to opt for, consider seeking the help of a regulated financial adviser. You can search for one using the comparison sites Unbiased or VouchedFor.
You can also get free guidance about your options from Pension Wise. This service, from government-backed MoneyHelper, offers face-to-face, telephone or online appointments to over-50s with a defined contribution pension.
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