Surge in demand for annuities as retirees look to swerve inheritance tax on their pension: Are they worth another look?

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New data from Standard Life reveals that the proportion of people aged over 75 getting an annuity quote has quadrupled in the last two years.

The pensions and retirement specialist said that this is being driven by strong annuity rates and the fact that unspent pension pots will be subject to inheritance tax from April 2027.

An annuity lets you cash in your pension pot in return for a guaranteed income in retirement, which would mean there is no pot left over to tax when someone dies.

The number of over-75s seeking a quote has gone from from 1.3 to 5.5 per cent since 2024, Standard Life said, suggesting that some could be changing their plans

It also said that quotes for annuities worth at least £1million more than doubled from 2024 to 2026.

When it comes to the level of annuity that Standard Life has actually paid out, this is up 14 per cent from 2025 to 2026 – increasing from £91,000 to over £100,000.

Pete Cowell, head of annuities at Standard Life, said that the data reflects how retirement needs and planning behaviours are evolving.

'The forthcoming inclusion of pensions within inheritance tax is prompting many to revisit how they use their pension savings, and annuities are one of a number of options available,' he said.

An annuity is a financial product that lets you cash in some – or all – of your pension pot in return for a guaranteed income in retirement.

This can last for your whole life or a set period. It's possible to add extra protections to an annuity, such as the ability to pass the income to a spouse on death.

They're getting more attention now because of rising annuity rates, which improve the income you can receive, and because pensions will be subject to inheritance tax from April 2027.

With inheritance tax kicking in when an estate is worth £325,000 for a single person, more people will be brought into the inheritance tax net.

But exchanging a pension pot for an annuity reduces the value of the estate. Inheritance tax rules are very complex, so it's worth speaking to a financial adviser to understand your options.

According to a report from the independent Second Pensions Commission, annuities are more popular among:

• older adults – e.g. those aged 65 to 74 accessing pensions
• people with larger pension pots
• people with higher income levels
• those who have taken financial advice

However, the same report says that annuities are still seen to offer poor value for money and are not flexible.

This is backed up by separate data conducted by Standard Life in 2025, which reveals that while there's a growing understanding of the options that annuities provide, the majority of over 50s are still uncertain about their flexibility.

Only 37 per cent of over-50s understand they don't need to use their full pension pot to buy an annuity – although this is up from 31 per cent in 2024.

What's more, just 38 per cent are aware that an annuity can give an income to a spouse over their lifetime, while only 35 per cent recognise that annuities can be used alongside drawdown.

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Income drawdown refers to taking money directly from your pension pot when you reach retirement age.

> Read more: How to invest your pension with a self-invested personal pension

Comprehension plummets among those who aren't yet retired, according to data from the consumer champion magazine Which?.

Some 52 per cent of respondents said that they don't know what an annuity is, while just over a quarter confused annuities with equity release by saying they help you access the money tied up in your home.

Financial advice could lead to a better understanding of how annuities fit into an overall retirement plan.

We have a guide to annuities that explains more about them, from how they work to the options available.