The effect of thermal annealing on In0.25Ga0.75N/GaN quantum wells grown by molecular beam epitaxy at 550 degrees C is investigated. A strong increase in the 300 K photoluminescence (PL) intensity is observed for samples annealed at 880 degrees C, while degradation occurs for higher temperatures. The improvement of the optical properties is ascribed to higher internal quantum efficiency (IQE), as indicated by temperature-dependent and time-resolved PL experiments. The effect of carrier localization due to possible quantum dot formation via indium clustering is ruled out based on high-resolution transmission electron microscopy imaging. IQE improvement is thus attributed to a reduction of point defects upon annealing.