Sales of annuities have fallen by more than one-third between the first and second quarter of the year, Yvonne Braun, head of savings, retirement and social care at the Association of British Insurers, has said.
Ms Braun said: “Customers with smaller pots have immediately started to use the new freedoms to take their cash lump sum, something for which the industry has long campaigned.”
The latest annuity sales figures for the second quarter of 2014 revealed that a greater proportion of annuities were internal; that is, they bought an annuity from the same insurer. The figures suggested this was likely to be with people with larger pots, as they wanted to take advantage of guaranteed annuity rates.
But the ABI data also showed that there was a big rise in external annuities sold in the second quarter to people with pots below £10,000, as well as strong continued demand for enhanced annuities.
Ros Altmann, UK government older worker’s champion, said: “It is disappointing to see that UK pension providers have not allowed customers to benefit from the freedom and flexibility the Chancellor intended them to enjoy.
“If the industry really wants to restore its credibility, it needs to invest in the systems that will ensure customer needs and wants are properly catered for.”
Dave Miller, executive general manager of sourcing at Iress, said that despite the expected ascendancy of drawdown and investment-oriented products for those at retirement, announced in this year’s March Budget, annuities are still expected to remain a key pillar in retirement planning.
Vince Smith-Hughes, head of business development at Prudential, agreed.
He said: “Annuity sales will still have a place in the new world, and annuitising later in life for many clients will continue to be the right thing to do. In the meantime, for some clients, advisers will recommend a plan designed to create a sustainable income stream using the new drawdown rules.”
Mark Stopard, head of product development at Partnership, said that certain types of annuities would still be relevant.
He said: “The figures highlight that enhanced annuities are increasingly finding favour with those who want a guaranteed lifetime income, which takes into account their personal, medical or lifestyle circumstances.”
Table 1: Changes in annuity sales and drawdown sales
Q2 2014 | Q2 2013 | % change year on year | |
Annuity sales - number | 46,368 | 89,896 | -48% |
Annuity sales - value £bn | £1.8bn | £3.1bn | -42% |
Average fund size | £38,600 | £34,500 | +12% |
Income drawdown sales - number | 9498 | 6132 | +55% |
Income drawdown sales - value | £669m | £487m | +37% |
Average drawdown fund value | £70,500 | £77,700 | -10% |
Drawdown value as % of annuity sales | 37% | 16% | (21 percentage |
Source: ABI/Ros Altmann
Adviser view
Alan Higham, founder of Bucking-hamshire-based Retirement Angels and retirement director for Fidelity Worldwide Investment, said: “Unsurprisingly, the numbers of people buying annuities have fallen since the first quarter.
“While open market sales have dropped by 46 per cent, internal annuities have fallen by just 29 per cent, which indicates that a significant number of consumers are still not shopping around. While the Budget changes may have disturbed the market, more is needed to encourage this behaviour.”
