According to the Association of British Insurers (ABI), sales of retirement pensions reached their highest level in terms of post-pension freedom last year.
According to the association, annuity sales in 2023 will total sales of £5.2 billion, up 46% on 2022.
This is the highest annual value since pension freedoms were announced in 2014, which gave retirees more flexibility in how they access their retirement savings.
The freedoms, which came into effect in 2015, gave people over 55 a variety of choices about how to use their defined contribution (DC) pension. Typically, people can take up to 25% of their pension as a tax-free lump sum.
Before freedom, many people would have purchased annuities that provided retirees with a guaranteed income. Pensions have been controversial due to disappointing rates and concerns that not enough people are shopping around to buy the product that best suits their needs.
ABI suggested that strong sales reflect higher interest rates as more people seek to secure a stable retirement income.
ABI said it achieved a strong fourth quarter, with pension sales reaching £1.5 billion, following a strong third quarter last year where total revenue reached £1.4 billion.
ABI said tiered annuities, which pay the same income each year but can be vulnerable to inflation, remain the most popular version of this product. This type of annuity has a higher starting income than an incremental annuity, which provides income that increases each year.
Last year, almost two-thirds (64%) of pension buyers got their pension from a provider other than where they saved their pension.
However, only 29% of customers who purchased annuities did so with expert advice.
Rob Yuille, head of long-term savings policy at ABI, said: “Securing guaranteed income for life remains an important part of the range of options people consider at and during retirement, and we’re excited to see more of them doing so. Take advantage of the protection they offer.
“It is also encouraging to see more people exploring the market to secure higher incomes.
“But we want more people to be able to live their best retirement by taking advantage of expert advice and new forms of personalized support for consumers.”
Stephen Lowe, group communications director at retirement specialist Just Group, said: “It’s great to see most people finding their way to the best deals, a huge improvement over the past, but there are still too many people missing out.”
Pete Cowell, head of pensions at Standard Life, part of the Phoenix Group, said: “Annuities have benefited from rising interest rates and it is clear that clients and advisers are reacting to this and enjoying the benefits of guaranteed guaranteed income. A broad mix of retirement income solutions is available.”
He said: “Once your pension is set you can’t change it, but there are different pension options and different ways you can use your pension. Annuities can be purchased in stages during retirement or later in life, helping to prevent inflation from impacting your hard-earned savings.
“Currently, the average pension rate for a healthy 65-year-old is over 6.6% (£50,000 pension without any additional benefit features). People should remember that shopping around is important when looking for the best rates.
“People can always speak to a financial adviser to help them decide which type of pension best suits their needs, but they can also get free, impartial guidance from MoneyHelper’s service, Pension Wise.”
Sir Steve Webb, former pensions secretary and now partner at consultancy Lane Clark & Peacock (LCP), said: For some people this will be the right answer.
“Managing pension withdrawals, especially into your 70s and 80s, is likely to become increasingly difficult. This is especially true if you have little idea how long your pension should last.
“For many people, a mix of withdrawal flexibility and pension security is likely to be a good thing, especially if pension rates improve, so it is welcome to see renewed interest in these guaranteed income products.”
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “According to the ABI, pensions had a strong year in 2023, with sales of £5.2 billion. This is the year that this product, which was once pushed to the sidelines, received attention once again as income soared due to a surge in interest rates.
“Annuities should always be part of the discussion when you need some level of income security in retirement, but their reputation for being inflexible and poor value for money puts many off.
“But as interest rates soared, so did pension income. Data from Hargreaves Lansdown's (HL) pension search engine shows that in the wake of smaller budgets, pensions have reached a peak of £7,586 per year for a 65-year-old on £100,000.
“Since then they have backed off a bit – the same person can get up to £7,117 – but it still offers good value so you can expect interest rates to remain high.”