Rising Demand for Annuities Ahead of Inheritance Tax Changes

The demand for annuities is experiencing significant growth among wealthier retirees in anticipation of the impending changes to inheritance tax regulations set for implementation in 2027. Standard Life reports a substantial increase in pensioners over 75 purchasing annuities, with transactions involving amounts exceeding £1 million having doubled in the early months of 2026.

The rising appeal of annuities can be largely attributed to attractive annuity rates nearing nine percent for older investors. However, the primary motivator is the strategic use of annuities for gifting purposes under inheritance tax rules. Clare Moffat, a pensions and tax expert at Royal London, highlights that the ability to make regular gifts from annuity income that qualify for inheritance tax exemption is a significant consideration for retirees transferring wealth to family members.

Nicholas Nesbitt from Forvis Mazars notes a tenfold increase in interest regarding annuities as part of inheritance tax planning, driven by higher interest rates and forthcoming tax adjustments. The onset of new regulations from April 2027, which will include unused pension funds in the inheritance tax scope, prompts many to reconsider traditional retirement strategies that typically advocated for leaving pension funds intact.

Analysis by Eversheds Sutherland anticipates an increase in individuals liable for inheritance tax once these changes take effect. Pete Cowell of Standard Life observes that retirement planning has become increasingly dynamic as individuals adjust strategies in response to evolving tax regulations. Cowell notes that those aged above 75 likely recall when annuities were standard before pension freedoms were introduced.

The looming inheritance tax alterations are driving a renewed focus on annuities, serving as a viable solution for wealth transfer planning. Mr. Nesbitt predicts sustained growth in annuity demand approaching the 2027 deadline, especially with the potential for high effective tax rates on inherited pension wealth.

Research from Standard Life indicates a growing expectation among financial advisers that annuities will gain popularity due to these tax modifications. This is further evidenced by a 14 percent rise in average annuity premiums, reflecting enhanced interest from retirees seeking stable financial planning options.