Annuities surge as inheritance tax hits pensions from April 2027

From April 2027, your unused pension pot will be taxed as part of your estate when you die – and it’s already changing how people plan for retirement. New data shows a dramatic shift: the number of over-75s asking for annuity quotes has quadrupled in just two years, jumping from 1.3% to 5.5% of people in that age group.

So what’s an annuity, and should you consider one?

An annuity is essentially a swap: you hand over your pension pot (or part of it) to an insurance company, and they give you a guaranteed income for life. Once you’ve spent that money, there’s nothing left in your estate to be taxed. That’s the appeal for many retirees now facing the new inheritance tax rules on pensions.

The timing matters too. Annuity rates have improved significantly, meaning the income you get in return is better value than it was a few years ago. Standard Life, a major pensions provider, reports that the average annuity payout has risen from £91,000 in 2025 to over £100,000 in 2026.

But here’s the catch: annuities aren’t perfect. They’re inflexible – once you’ve bought one, you’re locked in. And they’ve historically been criticised for offering poor value, particularly for younger retirees or those in good health. The Second Pensions Commission found that annuities appeal mainly to older adults, people with larger pots, and those who’ve received financial advice.

Who’s affected?

From April 2027, inheritance tax kicks in when an estate exceeds £325,000 (for a single person). With tax charged at 40% on amounts above that threshold, many more middle-income savers will be caught.

What should you do?

Before rushing into an annuity, get professional advice. Inheritance tax rules are genuinely complex, and an annuity isn’t the only option – you might consider other strategies like gifting money or using trusts. Services like Unbiased can match you with a qualified financial adviser, or Pense can help you explore annuity options specifically.

The key is to act soon. With the April 2027 deadline approaching, now is the time to understand your options and plan ahead.