Retirement-funding behaviours have shifted in recent years, with annuities staging a comeback.

These retirement products, which provide a guaranteed income for life, fell out of favour over the past decade, but economic conditions have pushed up annuity rates, making them a more attractive proposition. Last year, annuity sales totalled £7.4bn — the highest level since 2014.

Annuities offer peace of mind, guaranteeing a regular income no matter how long you live. On the downside, however, they are inflexible. Once purchased, you cannot switch provider or unwind the contract. There is also the risk that if you die early, you may have received less in income than the amount paid for the annuity.

Many annuities pay a level income that does not rise over time, meaning inflation can erode spending power, particularly over a long retirement. Escalating annuities are becoming more popular with sales up 10% from 2024 to 2025. They increase payments each year, either at a fixed rate or in line with inflation, but they cost more and usually start with a lower income.

Other choices matter too. Joint-life annuities continue paying a reduced income to a surviving spouse or civil partner, while enhanced or impaired-life annuities offer higher payouts to those with health conditions. Changing tax rules add another consideration. From April 2027, unused pension pots will fall within inheritance tax calculations, potentially influencing how retirees use their savings.

Importantly, annuities need not be an all-or-nothing decision. Many retirees combine an annuity with flexible drawdown, or delay converting pension funds to annuities until later in retirement.