Retirees are increasingly purchasing annuities as they prepare for significant changes to pension tax rules coming in 2027 under Chancellor Rachel Reeves' new policies. Standard Life reports that the number of customers over 75 buying annuities with their pension savings in early 2026 has surged more than fourfold.
From 6 April 2027, most pension funds will be considered part of the member’s estate for inheritance tax (IHT) purposes. This change includes pension payouts made as lump sums, drawdown to beneficiaries, or annuities. Even lump sum payments made into a bypass trust will be subject to IHT.
Pete Cowell, Head of Annuities at Standard Life, explains: “We’re witnessing a growing demand from older customers and larger annuity purchases as retirement planning adapts to the new tax landscape. The inclusion of pensions within inheritance tax is leading many to reassess their options, with annuities providing income certainty alongside attractive rates.”
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Annuity rates have reached some of their highest levels since the introduction of pension freedoms, making them an appealing choice. Although multi-million-pound annuities remain uncommon, strong demand is evident due to their attractive combination of guaranteed income and competitive rates.
The upcoming changes are expected to impact around 10,500 estates by subjecting them to inheritance tax where previously they would not have been, while approximately 38,500 estates could see increased IHT charges. This has prompted financial advisers and clients to explore strategies to minimize potential tax liabilities.
Nicholas Nesbitt of Forvis Mazars notes, “These legislative changes are prompting individuals to rethink how they draw on their retirement assets. Pension funds will now play a more central role in retirement income, while other assets will be evaluated more carefully for inheritance tax and legacy planning."
He adds, “For those with Defined Benefit pensions, continued company interests, or sufficient wealth, there are multiple strategies to avoid excessive taxation and secure better outcomes for beneficiaries.”
Despite the risks of double or triple taxation, experts remain confident that with thorough financial planning, retirees can balance their income needs while maximizing the value they pass on to their families.