Insurance sales boom amid surge in value of deals offering over £7,000 a year for life

Sales of annuities, which offer retirees a guaranteed income for life, have surged by almost 40 percent in a year.

The increase comes on the back of big increases in the value of the yearly income offered through these policies which has soared by 43 percent compared to just three years ago.

As a result of this increase someone aged 65 with a £100,000 pension pot can get up to £7,147 a year for life, although this is a single life level annuity which means it will not go up each year to reflect rises in the cost of living.

At the same time, a single life annuity means that the income disappears once the individual passes away with nothing for a surviving partner.

Total sales of annuities soared from 59,163 in 2022/23 to 82,061 in 2023/24, which represents a rise of 38.7 percent. Over 80 percent of these were level annuities, which means the agreed cash figure remains the same.

The figures were published by the Financial Conduct Authority (FCA) today as part of its Retirement income market data 2023/24 report.

Helen Morrissey, head of retirement analysis, Hargreaves Lansdown, said: "Annuity sales soared almost 39 percent, as retirees rushed to make the most of surging incomes.

"After years on the sidelines of the retirement income market, annuities are enjoying their time in the sun, as increasing interest rates pushed incomes skyward.

"The latest data on the HL annuity comparison tool shows a 65-year-old with a £100,000 pension can get up to £7,146 per year from a single life level annuity. This is up around 43% on what they would have got just three years ago."

But she warned retirees that these income offers on annuities are likely to fall back if the Bank of England cuts interest rates in the coming months, so people would be wise to act early.

She added: "It's great that people are getting good value from the annuity market, but the data also shows that people may not necessarily be opting for the best product for their needs.

"Annuity purchases were overwhelmingly taken on single life and level basis. This potentially means there are spouses that could be left with nothing when their partner dies.

" In addition, a sudden surge in inflation like we have seen in recent years could whittle away the purchasing power of that level annuity that looked such good value just a short time ago.

" It's vital that you consider what you need from your retirement income and look across the market before deciding to purchase an annuity rather than taking the first or highest income offered. Annuity comparison tools can allow you to do this easily and effectively."

Hargreaves Lansdown said people drawing down income from their pension pots, rather than buying an annuity, also remains "hugely popular". This carries its own risks because it can wipe out a much-needed nest egg.

She said: "Over 225,000 pots had an annual withdrawal rate of over 8 percent. There could be times during retirement when you need to take a bit more from your income to cover big expenses such as holidays, but doing it on a sustained basis can lead you to erode your savings pretty quickly and leave you in trouble later on.

"As a rule of thumb, withdrawals from a drawdown pot should be around 4 percent per year or in line with the natural yield on investments to remain sustainable long-term."