Annuity sales have continued to tumble, with a 43.8 per cent year-on-year drop in June, figures from Iress have shown. The data represents the fallout so far from the March Budget announcement affecting those at retirement, according to Dave Miller, executive general manager of sourcing at Iress.
Mr Miller said approximately 400,000 people will have been affected by the changes that will see compulsory annuity purchases a thing of the past from April 2015.
He said: “Those planning to retire have seen a seismic shift since March, and the dust is far from settled. Annuities demand has been hit in the short-term, as consumers hold fire until they have received guidance or see the extent of their options in April.”
In a 14-page At Retirement Report, published by the global financial services group, the post-Budget deliberations triggered a 43.8 per cent monthly fall in total annuity sales. Demand for single life annuities through financial advisers fell by 4.8 per cent in June, compared to May 2014.
The report also showed a 12.5 per cent variation in the annuity rates that prospective pensioners might face. In June, the average best rate for a standard single life annuity was 5.73 per cent, compared to the average worst rate of 5.02 per cent. For the average annuitant, this amounts to £469 a year - a difference in income of 12.5 per cent. Over the course of a 20-year retirement, this amounts to £9,381.
Richard Williams, head of the Leeds-based Annuity Bureau, said: “With the gap between the best and worst rates on the open market now at around 12.5 per cent and with an ever-maturing defined contribution market, it is important for the future guidance framework to do its job and that the signposting to suitable advice is given loud and clear, at the right time.”
However, rates on the average single life annuity have risen by 3.7 per cent, from £3,552 in June to £3,426 in May, claiming this was the highest since June 2013, according to the report.
Nigel Barlow, Partnership’s director of product development, said: “This rise suggests that those who have smaller pots may be waiting until April 2015, but those who have larger pension funds are still choosing annuities as they may have access to more flexibility already.”
Background
On 19 March, shares in life firms plunged directly after the Budget announcement. Partnership closed more than 50 per cent down and Just Retirement’s share capital fell to £771m, with its share price falling by 42.43 per cent.
Legal and General lost £1.1bn, closing at £12.5bn with share prices down 8.37 per cent; Prudential lost £700m, closing at £34.3bn; Aviva lost £550m, closing at £14.45bn with share prices down by 5.15 per cent; and Standard Life lost £260m, closing at £8.42bn.
Adviser View
David Trenner, technical director at Glasgow-based Intelligent Pension, said: “If only the gap between best and worst was 12.5 per cent. Recent tables from the FCA suggested the gap between the best and the seventh best was around 15 per cent.
“The research suggests that more than 50 per cent of people could get a better rate, but a rise from 12 per cent to 28 per cent, while good, is not shattering. A moderate enhancement - smoker or type-two diabetes - could see an increase of 10 per cent for some, but this means some 25 per cent of people are still missing out big.”
