The number of people between the ages of 51 and 59 buying annuities could drop by 3.3m because of the pension freedoms announced in the Budget, according to Angele Spiteri Paris, head of CoreData Research UK.
Speaking about the release of a 27-page report by CoreData – Annuities in a Post-Budget Environment – Ms Paris said that the industry needed to adapt “if life companies are to survive.”
The report, based on surveys of about 500 investors and 480 financial advisers carried out between May and June this year, together with Office for National Statistics figures, said that of the UK’s 7.2m “pre-retirees” 2.1m would buy an annuity under the new rules.
Ms Paris said: “Life and pension companies in the UK have to choose how to handle this new reality. Some have retained their strength while others are already feeling the pain of the drop in annuity sales.”
| Pre-Budget | Post-Budget | |
| Number of people presently aged between 51 and 59 expected to buy an annuity | 5.4m | 2.1m |
| Rough estimated of annuity market income | £80bn | £30bn |
According to the study, 5.4m people would have bought an annuity before the changes announced in the chancellor’s Budget.
The 3.3m decrease would mean that about £76.9bn moving into retirement products other than annuities, with people choosing alternatives including income drawdown and the withdrawal of tax-free lump sums.
This could result in the annuities market having its income reduced by around £50bn, from pre-Budget levels of around £80bn to post-Budget flows of around £30bn.
Ms Paris said: “Some companies have made public their efforts to diversify their business to keep afloat amid the changes.
“The market is bound to see more of these developments if life companies are to survive.”
Paul Sinthunont, the report’s main contributor, said asset managers and financial advisers could benefit as clients look for alternatives to annuities.
He said: “We are finding that high net-worth individuals are least likely to buy an annuity. There’s a link to the fact that these people have an adviser.”
He added that without innovation from the annuities market, many of their clients would be taken by asset managers and advisers.
Adviser view
Steven Rowe, director of West Midlands-based Lucent Financial Planning, said: “The best thing about the pension changes is people are realising they don’t have to buy an annuity.
“They didn’t have to before, but all the publicity has got them thinking about it.”
