Annuity sales fell by 16 per cent in 2013 compared to the previous year, data from the Association of British Insurers has revealed.
According to provisional figures released by the ABI, there were 353,000 annuities sold by members in the UK in 2013, worth £11.9bn total. This represents a 16 per cent drop on the previous year, with members reporting an increase in the number of client who chose to defer.
The popularity of medically-underwritten or enhanced annuities continued to grow, making up 28 per cent of all annuity sales by ABI members for the fourth quarter of 2013, and 24 per cent of the year as a whole.
This is up from 19 per cent in 2011 and 14 per cent in 2010.
Hargreaves Lansdown meanwhile has reported a 40 per cent increase in demand for drawdown business in 2013, although the company would not release absolute figures owing to them being market sensitive.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “The retirement income market appears to be shifting, with demand for annuities collapsing and surging interest in drawdown.
“The first wave of baby boomers has passed age 65 but even so, we would expect annuity sales to stay high yet they were lower in 2013 than in 2011, when fewer people were reaching their mid-sixties.”
Data from the Office for National Statistics shows that 715,000 people will turn 65 in 2014, compared to 769,900 who turned 65 in 2013. This suggests a slow decline from the spike of 811,300 who celebrated their 65th birthday in 2012.
These latest figures emerge only days after the Financial Conduct Authority condemned the annuity market after finding that around 130,000 people each year could be getting a better retirement income by shopping around.
The Financial Ombudsman Service has also criticised annuity providers recently, saying firms need to be clearer in their communication with clients and are guilty of not using “plain English”.
Critics also argued that many retirees could be losing out on securing better income via an enhanced annuity if they simply accept the default annuity provided by their insurer.
David Robbins, senior consultant at Towers Watson, said: “The ABI says that 28 per cent of annuities sold in Q4 2013 were enhanced, up from 7 per cent in 2008.
“It’s often overlooked that this will have an adverse effect on standard annuity rates - if insurers expect people buying standard annuities to live longer on average, the rates will be worse.”