The annuity market is enduring a “perfect storm”as pension reforms take their toll, figures from Moneyfacts and MGM Assurance have shown.
Moneyfact’s Personal Pension and Annuity Trends Treasury Report showed that standard annuity rates finished September at their lowest level since November 2013.
According to the report, the average standard annuity rate for a 65-year-old, based on a £50,000 pension pot, has gone down by 3 per cent, while standard annuity rates for a £10,000 pot have gone down by 2.7 per cent.
Richard Eagling, head of pensions at Moneyfacts, said: “In what is proving to be a particularly testing time for the annuity market, providers have once again reverted to more cautious pricing strategies.
“A fall in annuity rates of the magnitude that we saw in Q3 2014 is unusual, but can be explained by two main factors: a significant recent reduction in gilt yields and the much lower demand for annuities post-Budget.”
The pension proposals announced in the 2014 Budget mean that from April 2015, people will have much more freedom to withdraw money from their pensions and will no longer be required to buy an annuity.
| Average standard annuity rate Age 65 (£10K purchase price) | Average standard annuity rate Age 65 (£50K purchase price) |
Q2 2014 | £536 | £2,886 |
Q3 2014 | £521 | £2,799 |
3-month change | -2.7% | -3% |
Figures show gross annual annuity payable monthly in advance. Figures based on an annuitant aged 65 buying a standard level without guarantee annuity Source: Moneyfacts Personal Pension and Annuity Trends Treasury Report. 27.10.2014 | ||
| Period | Number of annuities sold | Value of annuities sold, £m |
| Q2 2014 | 46,368 | £1,792 |
| Q1 2014 | 74,270 | £2,478 |
| Q2 2013 | 89,896 | £3,098 |
| Source: ABI |
Provider MGM Advantage echoed the findings from Moneyfacts, claiming the average annuity rate had fallen by 2.38 per cent in the third quarter of 2014.
Aston Goodey, sales and distribution director at MGM Advantage, said: “The outlook for annuity rates remains unpredictable. The market is talking about the middle of next year before we are likely to see any increase in interest rates.”
The Association of British Insurers has no estimates for how many annuities will be sold between now and next April, but the value of annuities sold has gone down by nearly a half.
Yvonne Braun, head of savings, retirement and social care at the ABI, said: “ABI data provides a useful analysis of the immediate choices customers have made following the Budget.
“It suggests customers with smaller pots have started to use the new freedoms to take their cash lump sum, something the industry has campaigned for.”
Adviser view
Alan Higham, retirement director at Fidelity and founder of Buckinghamshire-based Retirement Angels, said financial advisers are having to work harder with a smaller number of clients while people wait until April to get their hands on their money.
He said: “The slowdown started well before the Budget. The reason is that people are deferring their retirement. A lot of people are waiting until April for the new rules to come into force.”
