Pension freedoms are ten years old

11 April 2025

April 2025 marks a decade since ‘pension freedoms’ reforms were introduced, giving retirees more control over how they access their pension savings. The anniversary has prompted the industry to take stock of the reforms’ impact on retirement planning.

The reforms, brought in by then-Chancellor George Osborne, were hailed as "the biggest pensions shake-up in a generation" and changed the way millions of people approached their retirement income.

They apply to anyone who has defined contribution (DC) pension savings, enabling more flexible access to pension savings than was previously possible. Options for turning your pension pot into income include an annuity for guaranteed income with no investment risk, drawdown for flexible access while keeping your money invested, and taking one or more lump sum payments.

Since the introduction of pension freedoms, over seven million pension pots have been accessed for the first time, according to AJ Bell. 

How have pension freedoms been received?

Ten years on, research suggests that pension freedoms have been largely welcomed. According to Standard Life, 84% of those who have accessed their pension savings feel they have benefited, with 79% saying they value the flexibility the reforms introduced. 

Instead of blowing their pension pots on extravagant purchases (contrary to early fears) many retirees have used their funds sensibly, with 24% easing day-to-day finances, 21% paying down debt, and 28% investing for the future.

Mike Ambery, Retirement Savings Director at Standard Life, reflected on the impact: "Pension freedoms have given retirees greater control over their financial future, and most have accessed their savings with restraint. It’s good to see that most retirees seem to reflect on pension freedoms positively."

However, while the ability to manage retirement income flexibly is beneficial, it also brings challenges. Research from the Pensions Policy Institute has found that 41% of retirees are at high or medium risk of making poor decisions, meaning careful financial planning remains essential.

Record-breaking year for annuity sales in 2024

Before pension freedoms, most retirees purchased annuities with their pension pots. Around 75% of defined contribution (DC) pots were taken this way. But the combination of more choice and low annuity rates saw annuity sales fall: annuity rates hit record lows following the Brexit vote in 2016. 

However, recent years have brought a major turnaround. In March 2025, annuity rates reached their highest level in 16 years, allowing retirees to secure significantly higher guaranteed incomes from their pension pots. 

Undoubtedly, the historically high rates have renewed interest in annuities. The Association of British Insurers (ABI) reported a record-breaking year for annuities in 2024, with sales rising by 24% to 89,600. 

Additionally, the total value of annuities sold hit £7 billion, up 34% on 2023. That marked a ten-year high, and the momentum continued into 2025. 

Higher annuity rates may not be the only factor fuelling growing annuity sales. Stock market volatility may also be prompting some pension savers to choose an annuity, since buying one locks in guaranteed income with no risk of future investment losses.

Looking ahead – planning for a secure retirement

With the first wave of pension freedoms retirees now ten years older, the next challenge is ensuring their savings last. A potential option for these customers with money in drawdown is to use it to buy an annuity at the current rates. 

For those swaying between the two options, a ‘blended’ mix of income drawdown and annuities can strike a balance between flexible access and financial certainty.

Investment markets continue to be volatile, so providing a blend of annuity and drawdown will provide more certainty than drawdown alone. Annuities provide guaranteed income and certainty, but remember that this comes with the risk of missing out on future investment growth. Also, you can’t typically change an annuity once it is set up, although that may not be a concern for you if long-term certainty about your income is more important.

As pension freedoms continue to shape retirement choices, ensuring access to guidance and support will be key to helping people make informed decisions about their financial future.

Standard Life’s Mike Ambery highlighted the importance of proper guidance: "With freedom comes responsibility – people need access to the right guidance and support to take a clear view of their options and make sure their money lasts."

How to secure the best available annuity rate

If you are considering an annuity, now could be the right time to explore your options. Our Annuity Specialists will search rates from the UK’s leading annuity providers, including Standard Life, Aviva and Just – often securing a higher retirement income than your existing provider can offer.

Call today on 0800 652 1316 or request a callback for the help you need today.

Sources

Seven million pension pots have been accessed for the first time since pension freedoms: 7mn pension pots accessed since pension freedoms introduced. FT Adviser. Accessed 01 April 2025.