The Government’s planned changes to pension inheritance tax rules are prompting some retirees to reconsider annuities as part of their estate planning. From April 2027, unused pension funds could become subject to inheritance tax, leading some wealthier individuals to explore transferring pension savings into annuities, which can provide a guaranteed income while potentially reducing the value of their taxable estate.
While annuities were once viewed as poor value, higher interest rates have significantly improved income levels in recent years. However, the decision to purchase an annuity should not be driven by tax considerations alone. Annuities can offer greater certainty and help with long-term financial planning, but they also involve giving up access to capital in exchange for a guaranteed income. As a result, retirees should carefully weigh the benefits of security, flexibility and estate planning objectives before making a decision.
Our Founder, James Baxter shared his insight with The Telegraph.
"The inheritance tax changes have handed annuity providers a powerful marketing argument, but the underlying maths have not changed in the investor’s favour. “Our analysis shows that, regardless of the type of annuity purchased or the age at which you buy it, you need to live beyond 95 to generate a better return than holding gilts inside a drawdown account. Office for National Statistics data puts the probability of reaching that age at around one in 10. “It is better to leave a proportion of something to your family than the certainty of nothing at all.”