Sales of annuities surged more than a fifth during the first three months of the year to reach their highest level for eight years.
Data from the Association of British Insurers (ABI) showed that people bought 16,256 annuities between January and March.
That was the largest amount recorded since July and September 2019 when 17,252 were sold.
Annuity premiums for the first quarter of 2023 climbed 22% to reach £1.2bn, the highest value since 2015 when the pensions freedoms were introduced.
That was up from £902m in the previous three months and £839m in the first quarter of 2022.
Yvonne Braun, ABI director of long-term savings policy said: “It’s great to see more people taking advantage of the protection annuities have to offer, especially given the current favourable rates.”
The figures were bolstered by more people switching provider. For the first time since 2016, more than 10,000 people bought an annuity from a different provider to their pension savings provider, the open-market option, making up 64% of sales and totalling £847m.
In comparison, only 55% of sales were made by a different provider in the same period in 2022.
Stephen Lowe, group communications director at retirement specialist Just Group, said: “It’s encouraging to see nearly two-thirds of retirees used their right to shop around and to switch away from their existing pension savings provider to a more competitive provider of annuities, although that still shows around a third are likely to be missing out on extra income.”
He said the gap between the top and bottom providers has widened to the point that a healthy 65-year-old can secure nearly 14% more annual income by securing the best instead of the worst rate, and potentially an even higher income depending on lifestyle factors and medical history.
Customers also appear to be turning in greater numbers to products which protect them from inflation, the ABI said: sales of escalating annuities, which provide an income that increases every year, grew by 23%.
Mr Lowe said: “Financial advisers can help people find the best deals by asking the right questions and having access to live rates from different providers. The ABI’s figures suggest the average pension used to buy an annuity was nearly £74,000 but even far smaller amounts than this are significant and justify seeking professional help.
“Beyond finding the best rate, advisers can help retirees choose the best ‘shape’ in terms of a spouse’s pension, death benefits and inflation-protection options which, as today’s figures show, becomes more important at a time of sharply rising costs.”
