Pensions  

Annuity sales increase after bottoming out: Iress

Annuity demand has shown signs of recovery, as despite demand still being subdued it has risen 14 per cent since the market’s trough in June.

According to a new report from financial services software supplier Iress, annuity sales are still down 41.7 per cent on an annual basis, however demand is increasing.

Analysis of data from more than 150,000 advised annuity cases found that demand for single life annuity products via financial advisers actually climbed 10.5 per cent in September, compared with August.

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Similarly, average retirement incomes have climbed, with the average single life annuity securing an income of £3,810 per year in September, increasing 4.6 per cent since August and up 16.7 per cent compared with September 2013.

This has been driven by the increase in the average annuitant’s pension pots, which is at its highest level since at least April 2012, hitting £72,134 in September.

Smaller pots are increasingly unlocked rather than annuitised, boosting the average pot size 4.9 per cent, compared with £68,779 in August.

Meanwhile, standard annuity rates have fallen to their lowest level since July 2013, down by 5.28 per cent in September.

Dave Miller, executive general manager for sourcing at Iress, said: “The Budget changes knocked the wind from the sails of annuity demand, but the slight recovery in the last quarter suggests the market may have bottomed out in the short-term.

“April 2015 will provide a pivotal moment for demand when guidance becomes available. At this point, we should also see variety in both annuities and investment-backed products.

“As people incorporate multiple and flexible products in their retirement, we believe guaranteed income will remain an important strut in long-term retirement planning.”

Mr Miller explained while average incomes for annuitants may have hit their highest in over a year, this is in spite of annuity rates, rather than because of them.

He said: “With interest rates still at historic lows – and a rise looking more distant than expected – and no concerted improvement in 15 year gilt yields, rates have had no real upwards pressure in recent months.

“However, as we see providers bring new offerings to market after April, this may bring increased competition and bolster annuity rates in 2015.”

The research also showed that demand for equity release has steadily increased, with sales made via a financial adviser climbing by 2 per cent in September compared with August, and by 7 per cent in the last six months, compared with the previous six months.

Mr Miller added: “Over 55s have accumulated property wealth of over £2,000bn in the UK, so it is clear there is scope for the equity release market to expand, especially as house prices continue to rise.

“A key role of advisers will be to help consumers evaluate their assets – whether property, savings or pension pots – as a whole as they approach retirement.”

peter.walker@ft.com