Annuity sales soared in 2023: 5 things you need to know

Annuity sales soared in 2023 as retirees looked to secure a guaranteed income for life in the wake of rising interest rates. 

According to the Association of British Insurers (ABI), last year was a ‘milestone’ year with sales totalling £5.2bn - the highest since 2014 when pensions freedoms were announced. 

Here, Which? explains five things you need to know about annuity sales if you’re considering one and our top tips for finding the best rate.

How annuities work

An annuity is an insurance product that allows you to swap your pension savings for a guaranteed regular income that will last for the rest of your life.

How much you get is determined by the rate the annuity provider offers and the type of annuity you choose.

People who have serious health problems should be offered a higher rate than someone who's likely to live for many years. The insurer is essentially taking a bet that it won't end up paying out more than the total pot.

• Find out more: annuities explained

1. Annuity sales increased 46%

According to the ABI annuity sales increased 46% in 2023 compared with the previous year.

This is the highest annual value since 2014 when pension freedoms were announced which granted retirees more flexibility on how to access their retirement savings.

Low interest rates since 2008 set annuity prices on a downward spiral. They bottomed out in the summer of 2016 (after the Brexit vote) and in March 2020, when the base rate was cut to 0.1% at the start of the Covid pandemic. 

Since November 2021, rising inflation and the resulting hikes in the base rate have reversed the trend and they reached a 14-year-high during 2023.

• Find out more: what can I do with my pension pot?

2. Level annuities remain most popular

According to ABI, level-only annuities remained the most popular in 2023, making up 82% of the total number sold. 

Level annuities pay the same income every year but can be vulnerable to inflation. 

This type of annuity has a higher starting income than an escalating annuity - which provides an income that increases every year. 

The proportion of escalating annuities sold increased by two percentage points vs 2022, making up the remaining 18% of total sales.

• Find out more: buying an annuity

3. Two thirds of buyers shopped around

The ABI said 64% of annuity buyers shopped around, and took an annuity from a different provider to the one they had their pension savings with.

Never settle for the rate your existing pension provider offers without first comparing quotes elsewhere. 

The gap between the worst and best rates is typically between 5% and 10%, but last year it hit 16%. 

According to Hargreaves Lansdown, the number of quotes people are generating is on the rise, which means more people are looking across the market to make sure they get the best product and rate for their needs.

• Find out more: gap between the best and worst annuity rate widens 

4. One 1 in 3 took professional advice

The ABI report found only 29% of customers that bought an annuity in 2023 did so with the help of professional advice.

Buying an annuity is a big decision, so seeking help from an independent financial adviser is a good idea.

Advisers research the annuity market for you and make a recommendation based on your goals.

• Find out more: how to get retirement and pension advice

5. Market remains 'buoyant' in 2024 

According to Jack Williams, head of pensions and retirement at Hargreaves Lansdown, there is still strong interest from people looking to secure a level of guaranteed income in retirement.

He said: ‘The days of soaring annuity rates may be behind us for now, but the market remains buoyant.

‘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.'

To find out more, we identify the factors that determine the rate you get on an annuity and how rates work in our guide on comparing annuity rates.

Make your money go further

Find the best deals, avoid scams, and grow your savings with our expert guidance. From only £4.99 a month, cancel anytime.

Join Which? Money

How to choose the right annuity

The type of annuity you choose will determine how much income you get and what happens when you die.

Do your research 

There are many different types of annuity, and you should think about what is right for you.

As well as level and escalating annuities (explained above) there are also ones that will pay out to your partner when you die and one suited to those with poor health. 

For example, if you’ve suffered from poor health, it’s important to declare this at the outset. You might qualify for an enhanced annuity. These pay out higher starting amounts (often an uplift of 15-20%) than normal, due to the assumption that you won’t live as long as those in good health.

• Find out more: enhanced annuities explained 

Decide if you want to take professional advice

Once you've been made aware of your options, you can choose to take financial advice on what decision you should make. 

Your adviser should ask you:

• whether you're married or have a partner
• whether you have any medical/lifestyle conditions
• whether you're concerned about your annuity losing value because of inflation
• whether you're taking any small pots as cash and whether you have any other pension pots

If you don't visit a financial adviser, your pension provider must make sure you've answered these questions.

• Find out more: pension calculator - how much money you'll have 

Compare providers 

It's vital to compare providers before you buy an annuity – each year people throw away an estimated £1bn in pension income by not shopping around. 

You can use tools such as the MoneyHelper annuity comparison tool, or use annuity brokers to find the best deals currently available in the market, and tailored to your circumstance.

Only non-advised providers will give you a quote without you taking advice first. There may be annuity providers offering higher rates only via a financial adviser.

• Find out more: annuity rates compared