Sales of enhanced annuities to people with a reduced life expectancy fell by 29 per cent in the first quarter of 2016 compared with the final three months of last year, according to research published by Willis Towers Watson last week.
The downward trend for annuity sales began in 2012, the advisory firm’s data shows.
Annuity sales totalled £357.4m in the last three months of 2015, and quarterly premiums fell by 29 per cent in the first quarter of this year to £254.2m.
Jeremy Nurse, a director at Willis Towers Watson, said this latest drop wiped 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 last year.
However, he added that in contrast to the steep falls posted in 2014, which directly followed George Osborne’s March 2014 Budget announcement on new pension freedoms, the last three sets of quarterly results provided a broader picture that suggested 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, which 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 rising in the first three months of 2016.
The total value of premiums sold increased by 17 per cent overall in the first quarter compared with the previous quarter in 2015, although the average premium per policy decreased by 2 per cent to £97,240 during the same period.
Mr 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.”
James Candow, financial adviser at Plymouth-based Continuum, said: “With the new pension freedoms coming in, a lot of consumers don’t realise the benefit of enhanced annuities and go straight to drawdown.
“On the whole, advisers know the benefits of enhanced annuities, but they could be led by clients if they want to go down the drawdown route. The enhanced annuity option should be explored more.”
ruth.gillbe@ft.com
