UK savers flee to once unfashionable payments to beat Rachel Reeves tax grab
Interest rates have pushed payouts to levels not seen in years
Rupert Lowe says inheritance tax should be 'scrapped'
Families are rushing to buy once unfashionable ‘income for life’ annuities as a way of protecting savings from Rachel Reeves’s looming inheritance tax raid.
Annuities – which swap a pension lump sum for a guaranteed annual income – are enjoying a remarkable comeback.
Higher than expected interest rates have pushed payouts to levels not seen in years, while the Chancellor’s plan to hit pension pots with inheritance tax has triggered a stampede.
A 65-year-old person with £100,000 can now secure up to £7,793 a year – a vast improvement on the £4,943 available in August 2021.
Figures from Hargreaves Lansdown show the average amount people are using to buy an annuity has surged 160% in just four years – from £62,301 in early 2021 to £162,729 this year.
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The firm described 2024 as the strongest year for annuities since pension freedoms were introduced after many years in which savers tended to avoid them because rates were too low and there were more flexible options elsewhere.
“The popularity of annuities continues to soar,” said Helen Morrissey, head of retirement analysis at Hargreaves.
“The values on offer are appealing to a greater range of people and fly in the face of the idea that bigger pension pots should automatically go into drawdown.
"A 65 year old with £100,000 in their pension pot can now get up to £7,793 a year - close to all-time highs and a vast improvement on the £4,943 available in August 2021.”
Phoenix Group, the UK’s biggest long-term savings firm, said annuities are increasingly being recommended by financial advisers as part of a “mix-and-match” approach – with some money kept invested for growth and the rest used to guarantee funds for “heating and eating”.
The rush has been turbo-charged by Reeves’s plan to include defined contribution pension pots in estates for inheritance tax from 2027 – meaning families could lose up to 40% of savings.
Steve Burley, of BFS Wealth and Protection, told The Times: “This could be a powerful way to reduce the size of an estate without triggering the new inheritance tax charge on pensions.
“The penny hasn’t dropped with everyone yet, but when it does, I expect a lot more interest in using annuities as a tool to beat inheritance tax.”
Dan Gallon, of the Association of British Insurers, said: “The increase in demand for annuity products since 2023 has been largely driven by higher rates, and it’s encouraging to see more taking advantage of the long-term financial security they provide.
"Charging inheritance tax on pensions will bring a number of challenges into an already complicated pensions landscape, so it will be even more vital that support is available to help people make the right decision.”
Former pensions minister Steve Webb, now a partner at LCP, added: “For many years annuities have been an unloved product, but are now enjoying a renaissance.
"Improved rates make the product seem a better deal, and a desire for certainty in the face of market volatility has helped.
"And now that annuities could be part of a strategy for passing on wealth to the next generation free of inheritance tax, the days of the annuity could be here to stay.”
