Annuities regain appeal as customers reassess pension strategies ahead of 2027 IHT reforms

By Mark Ormston, Chief Compliance Officer, Retirement Line

 

To support advisers as retirement planning continues to evolve, we invited Mark Ormston, Chief Compliance Officer at Retirement Line, to write a series of articles examining how annuities and guaranteed income solutions are being used in today’s evolving retirement landscape. Drawing on real‑world adviser and customer experience, the series explores how retirement income strategies are adapting to changing markets, regulation and customer priorities.

In this article, Mark Ormston explores why annuities are seeing renewed interest, particularly among customers with larger pension pots. With changes to inheritance tax rules approaching and market volatility remaining a concern, the piece looks at how guaranteed income is being reframed as part of broader retirement and estate‑planning conversations.

Annuities regain appeal as customers reassess pension strategies ahead of 2027 IHT reforms

It has been widely reported that annuities are experiencing renewed interest among retirees, especially when it comes to larger pension pots. Data from the Association of British Insurers (ABI) shows that sales of annuities over £250,000 rose by 31% in 2025, and sales of annuities valued at over £500,000 rose by 54%¹.

A significant driver for this trend is that customers are reassessing retirement and estate-planning strategies ahead of major inheritance tax (IHT) changes due to take effect in April 2027.

Every adviser will have 6 April 2027 firmly in their sights as the date when unused defined contribution pension funds and death benefits are set to become part of the value of an individual’s estate for IHT purposes. It’s a move that could significantly alter the way people use pensions within wealth planning.

For many years, pensions have been viewed as one of the most tax-efficient ways to pass on wealth. Of course, we can trace much of that shift back to the introduction of pension freedoms in 2015, which removed the previous 55% tax charge that applied when DC funds were paid as a lump sum to beneficiaries.

By removing the distinction between crystallised and uncrystallised funds for tax-free death benefits before age 75, those reforms also significantly increased the appeal of pensions as a vehicle for intergenerational wealth transfer. This prompted many advisers and customers to draw on other assets first, while preserving pension wealth.

The government’s planned IHT reforms from 2027 could begin to reverse that trend, prompting many customers to rethink how to use their pension savings in retirement.

Growing interest in guaranteed income

One area seeing renewed attention is annuities. After a prolonged period of decline following the introduction of pension freedoms, annuity sales have been rebounding in recent years as rates improved significantly and retirees sought greater certainty about their income.

But the attraction of higher rates and more income doesn’t tell the whole story. At Retirement Line, a growing number of clients with larger pension pots are reviewing their retirement strategy in light of the upcoming IHT changes.

In the early part of 2026, annuity applications through our brokerage service are up 44% compared with the same period in 2025 for customers with funds over £0.5 million. more retirees look at guaranteed income as part of a wider estate planning conversation. That aligns with the ABI data on larger pots mentioned above.

My view is that having the certainty of a guaranteed income hitting their bank account on a regular basis makes it easier for clients to redirect these funds to their beneficiaries, using the gifting from excess income rule. Customers can therefore gift significantly more than £3,000 a year to reduce their estate.

Customers can also receive higher income, especially if the income is purely for gifting purposes, by selecting less frequent payment frequencies, such as quarterly or half-yearly.

It’s often been said that there’s much greater joy in gifting while you’re still alive to see your beneficiaries put your wealth to good use. That’s a sentiment we hear more and more from customers showing an interest in shifting wealth transfer from their estate to the here and now.

A broader planning conversation

However, it must be stressed that annuities are only one strategy to consider as part of a broader review of retirement and estate planning.

Some customers and advisers are starting to revisit whole-of-life insurance policies – often written in trust ‒ as a way of providing beneficiaries with a lump sum designed to offset a potential IHT liability. 

Trust structures themselves remain a core planning tool for certain clients. Others are reviewing investments that may qualify for Business Relief. These include portfolios of AIM-listed shares or Enterprise Investment Schemes, which only need to be held for two years to obtain full relief rather than the seven-year rule for gifts.

In addition, some retirees are considering drawing down pension assets earlier, or increasing spending in retirement rather than leaving large unused pots.

Reframing the role of pensions

With the IHT reforms expected to come into force in just over a year, we’re entering a period where the traditional role of pensions is being reconsidered.

For many years, the post-2015 tax framework viewed pensions not only as a source of retirement income, but also as a highly efficient wealth-transfer vehicle. The 2027 changes may begin to shift that balance back towards the use of pensions primarily to fund retirement itself.

Summary

From Aviva’s perspective, this growing focus on certainty and outcomes reflects a wider shift in retirement planning. As customer needs evolve, advisers increasingly need flexible ways to blend guaranteed income with investment‑led solutions. Articles like this highlight why annuities continue to play an important role within modern, well‑structured retirement strategies.

 

 

Source:

¹ Increase in sales of large value annuities: Larger pension pots drive record-breaking year for individual annuity premiums. ABI, 12 February 2026.