Research published by Willis Towers Watson today (10 August) shows sales of enhanced annuities to people with a reduced life expectancy fell by 29 per cent in the first quarter of 2016, compared to the final three months of last year.
According to the advisory firm’s data, the downward trend for annuity sales began in 2012.
In the last three months of 2015 annuity sales totalled £357.4m, and quarterly premiums fell by 29 per cent in the first quarter of 2016 to £254.2m.
Jeremy Nurse, a director at Willis Towers Waston said this latest drop wipes out modest gains made in 2015, with sales now only marginally higher than the eight-year low of £241.5m recorded in the second quarter of 2015.
He added, however, that in contrast to the steep declines recorded in 2014, which directly followed George Osborne’s March 2014 Budget announcement on new pension freedoms, the last three sets of quarterly results provide a broader picture that suggests the rate of decline may now be slowing and some stability returning to the annuities market.
Research by the firm found conversely the performance of unit-linked guarantees - often known as variable annuities and provide regular income payments guaranteed not to fall but may also rise if investments perform well - has been diametrically opposed to enhanced annuities.
The performance of these products has fallen in the third and fourth quarters of 2015, but increasing in the first quarter of 2016.
The total value of premiums sold increased by 17 per cent overall in the first three months of 2016 compared to the previous quarter, although the average premium per policy actually decreased by 2 per cent to £97,240 during the same period.
Jeremy Nurse said: “The new pension flexibilities introduced in April 2015 had a major impact on the market for enhanced annuities, but these pension freedoms are now settling in and working as intended.
“This is a credit to the providers who have had to work hard to get ready for the new conditions and provide appropriate retirement solutions for customers in the future.”
Year | Unit linked guarantees premiums (£m) | Enhanced annuity premiums (£m) |
2007 | 538.7 | 1,095.2 |
2008 | 1,153.3 | 1,444.7 |
2009 | 1,045.4 | 1,785.6 |
2010 | 947.6 | 2,468.1 |
2011 | 1,094.0 | 3,019.4 |
2012 | 1,418.3 | 4,484.8 |
2013 | 1,113.9 | 3,846.6 |
Q1 | 233.2 | 982.2 |
Q2 | 310.0 | 915.4 |
Q3 | 321.7 | 983.7 |
Q4 | 248.9 | 965.3 |
2014 | 866.8 | 2,169.1 |
Q1 | 232.2 | 847.3 |
Q2 | 212.6 | 600.1 |
Q3 | 229.2 | 386.9 |
Q4 | 192.8 | 334.8 |
2015 | 771.7 | 916.8 |
Q1 | 202.3 | 267.1 |
Q2 | 231.1 | 241.5 |
Q3 | 176.8 | 290.8 |
Q4 | 161.5 | 357.4 |
2016 | 189.4 | 254.2 |
Q1 | 189.4 | 254.2 |
Source: Willis Towers Watson
ruth.gillbe@ft.com