Fewer people are buying annuities – but those that did so last year had larger pots, were more likely to buy escalating annuities, and secured their income at older ages, the Association of British Insurers has said, with premiums over £500,000 up 54%.

While the number of annuities sold has fallen 2% year on year to 87,000, the ABI said the volume of premiums has gone up by 4% to £7.4bn, the highest annual level since pension freedoms were announced twelve years ago.

Sales of annuities over £500,000 rose by a staggering 54%, and those over £250,000 by 31%, according to the association, bringing the average to £84,000 - a 7% increase on the previous year.

Older people are now more likely to annuitise, as the data shows an 8% rise in the number of people 70 and over buying an annuity.

“It’s always been a good idea to ‘flex then fix’, using savings flexibly in early retirement, then locking in a guaranteed income at higher rates when certainty matters most,” said Rob Yuille, assistant director, head of long-term savings at the ABI.

He suggested future tax changes might be contributing to the increase in premiums: “Now, with pensions coming in scope of inheritance tax from April 2027, choosing an annuity means a guaranteed income for life, with the option of providing for loved ones without worrying about potentially penal tax impacts.”

The ABI stressed that one of the strongest areas of growth by product type are annuities that increase payments each year, either by a fixed percentage or being linked to inflation, with escalating annuities up 10% to 18,000 last year, the highest level since 2013.

The figures suggest that the overwhelming majority of consumers continue to opt for level annuities, however. Inflation-linked products typically start lower and only exceed the total income received from level annuities after about 20 years, though prolonged high inflation would shorten this.

One firm active in the annuities market is positive about the outlook, despite fewer annuities being sold.

David Cooper, director at provider Just Group, said: “We are optimistic for further growth in the annuity market, as increasing numbers of savers reach retirement with defined contribution pensions and seek options that give them the financial peace of mind that comes from receiving a secure flow of income for the rest of their lives."

Annuities might become more common as defined contribution schemes will have to offer default pension pathways to savers, with some looking to build retirement options that combine drawdown with deferred annuities. Master trust Nest has appointed bulk annuity specialist Rothesay to co-design a bulk deferred annuity.

DC master trusts are expected to have to start complying with guided retirement rules next year, with other occupational DC schemes following in 2028.