Annuity sales increased by 22 per cent in Q1 2023 compared to Q4 2022, according to data from the Association of British Insurers (ABI).

The association noted that as annuity rates are strongly linked to interest rates, the rise in annuity sales reflected the increased interest rates in the first quarter of this year.

Between January and March 2023, people bought 16,256 annuities, the largest number of annuity purchases since 17,252 were sold in Q3 2019.

Annuity premiums in Q1 2023 totalled £1.2bn, the highest value since 2015 when pensions freedoms were introduced and gave people more flexibility in how they accessed their retirement savings.

The ABI noted that the strong activity in the annuity market was partly driven by more people switching pension providers.

For the first time since 2016, more than 10,000 people bought an annuity from a different provider to their pension savings provider, making up 64 per cent of the sales in Q1 and totalling £847m.

By comparison, 55 per cent of annuity sales were made by different provider in the first quarter of 2022.

The ABI also found that more people appeared to be purchasing products that protect them from inflation, with sales of escalating annuities increasing by 23 per cent in Q1.

“Annuities offer a guaranteed income for life, like a final salary pension scheme,” commented ABI director of long-term savings, Yvonne Braun.

“It's great to see more people taking advantage of the protection annuities have to offer, especially given the current favourable rates.

“Securing a guaranteed income for life remains an important part of the mix of options for people to consider at and during retirement."

Standard Life managing director for retirement income, Claire Altman, added: “The tide is clearly turning when it comes to peoples’ appetite for annuities.

"This is the highest quarterly level since the pensions freedoms were introduced. Rising interest rates have seen annuity rates improve by c.31 per cent over the last year, and with a volatile stock market and economic uncertainty, coupled with the increasing pressure of the cost-of-living crisis, the value and certainty offered by a guaranteed income is becoming hard to ignore.

“Eight years on from the pension freedoms and it’s clear that we’re entering a new era of retirement income planning, where guarantees will play a far more central role as people look for ways to make the most of their retirement savings.”

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