The number of drawdown income contracts is up 72 per cent from this time last year, according to Iress’ latest at-retirement report, with annuity sales tumbling since the April reforms.
The software firm’s research team analysed data from its online comparison quote and transaction portal, analysing more than 150,000 key fact illustrations, finding that just 17 per cent of annuities were the enhanced variety in June, down from one-in-three in March.
However, average annuity rates reached a six month high this quarter – now standing at 5.09 per cent – suggesting a recovery from the recent lows, in turn helping to stimulate demand over the long-term.
The increase in rates has also driven an increase in average incomes, triggered by those with bigger pension pots annuitising.
Alongside improved rates, average pot sizes have risen.
Overall, the average pot at the end of the second quarter of the year stood at £67,504 – a 5 per cent increase compared with March and a 3 per cent increase compared with the same month in 2014.
Dave Miller, executive general manager for commercial at Iress, commented that pensions freedom day hit annuity activity hard in April, but in the months that followed, the mini-bounceback points to demand stabilising, buoyed by improving rates.
He said: “However, with further changes in the market on the cards – not to mention new investment and hybrid products likely to launch – we have not seen the end of disruption and innovation in the retirement market.
He noted that shopping around remains a key issue for consumers, given the growing gap between the best and worst rates. “On top of this, there is still more work to be done on promoting consumers’ eligibility for enhanced annuities.”
Property continues to be a key consideration for financial planning in retirement and there has been an increase in equity release in the second quarter, with sales of equity release products via an adviser up 19 per cent compared to the first quarter and 22 per cent higher than levels seen this time last year.
Jim Boyd, corporate affairs director at annuity specialist Partnership, pointed out that the Iress data suggested that while the overall demand for annuities has grown by 32 per cent from March to the end of June, the proportion relating to enhanced annuities illustrations has fallen.
“Many people requesting annuity illustrations will be planning decisions months and often years in advance; some will be obtaining illustrations solely for the purpose of advising on income drawdown.”
He stated that for these reasons, it is too early to be able to draw conclusions from illustration data during this period of change.
“Enhanced annuities remain an important part of the adviser tool kit. Indeed, for an average sized pot (£69,120) a smoker could secure an annual income 7 per cent higher than an income of a non-smoker (£3,680),” said Mr Boyd, urging consumers to seek advice to ensure they get the best deal.
LV’s half-year results last week confirmed the trend, with annuities overall falling 37 per cent from £232m during the first six months of 2014 to £146m during the same period this year, and enhanced annuities taking a particularly heavy hit, down from £137m to £55m year-on-year.
Earlier today, eCommerce standards and services body Origo revealed statistics from its transfers service showed that the volume transferred into annuities fell by 68 per cent in April, compared with transfers a year ago.
peter.walker@ft.com
