State pensioners are rushing to purchase annuities ahead of sweeping changes to pension rules due to take effect in 2027, according to new data from Standard Life. The proportion of customers aged over 75 buying annuities with their pension savings during the first six months of 2026 has more than quadrupled compared to the same period in 2025.
New Inheritance Tax Rules Coming in 2027
From 6 April 2027, most pension funds will fall into the member's estate for inheritance tax (IHT) purposes under a rule change introduced by Labour Party Chancellor Rachel Reeves. This will include funds paid out as a lump sum, beneficiary's drawdown, or an annuity. Lump sum payments into a by-pass trust will also be in scope.
Standard Life estimates that around 10,500 estates will be brought into paying IHT due to the change, with approximately 38,500 estates facing higher IHT bills than under previous rules. Advisers and their clients are looking for ways to reduce potential tax liabilities.
Annuity Demand Surges Among Older Pensioners
Pete Cowell, Head of Annuities at Standard Life, said: “We’re seeing growing demand from older customers as well as an uplift in larger annuity cases, reflecting how retirement needs and planning behaviours are evolving. The forthcoming inclusion of pensions within Inheritance Tax is prompting many to revisit how they use their pension savings, and annuities are one of a number of options available.”
He added: “While multi-million-pound annuities are still a minority purchase, the market is experiencing strong demand due to the combination of income certainty and attractive rates. Rates are currently at historically strong levels, reaching post-pension freedoms highs in May.”
Advisers Recommend Strategic Planning
Nicholas Nesbitt, from Forvis Mazars, said: “We are already seeing these legislative changes leading to individuals taking a different approach over how they draw on their various assets in retirement. Pension funds will, for most, take on a more significant role in fulfilling retirement needs, while other assets may be increasingly viewed in the context of IHT and legacy planning.”
For those who do not need to rely on their lifetime savings—perhaps due to Defined Benefit (DB) pensions, continued company interests, or simply the size of their wealth relative to their needs—there are a range of ways to avoid punitive double and triple taxation scenarios and create better outcomes for future beneficiaries, Nesbitt said. He concluded: “Ultimately, whilst the headline double or triple taxation risk looks significant, we are confident that, with good financial planning, individuals can balance their needs with their desire to maximise the value they pass on to their families.”
