Mutual pensions provider LV saw its underlying annuity sales fall by around a quarter in 2014 in the wake of the radical changes announced at the Budget, as enhanced policies in particular witnessed a sharp slump ahead of new freedoms coming into force from April.
The group’s figures show headline annuity sales were down 15 per cent from £457m to £387m, but this includes one-year annuities launched in the wake of the Budget for those seeking to tread water until the full reforms come into force, which are actually written under drawdown rules.
Stripping out the £43m worth of sales from fixed-term one-year products, overall sales actually fell 25 per cent. Enhanced annuities sales fell 36 per cent to £205m, while fixed-term products of more than one year rose slightly from £137m to £139m.
Overall sales of retirement products fell by just 1 per cent to £1.13bn in 2014, LV’s full-year trading statement revealed.
Richard Rowney, managing director for LV life and pensions, was pleased to report sales up £80m compared to 2013, although he noted a distinct change in product mix and a reduction in margins.
“As expected, following the chancellor’s announcement that annuities will no longer be compulsory, we have seen a drop in sales in enhanced annuities, however sales have been good in other products, particularly in equity release, fixed term annuities and bonds, as people increasingly choose to take other retirement income products that offer a level of guarantee.
“We believe we will continue to see this change of buying habits and increasingly people will opt for flexible or blended solutions, with a level of financial security, that enable them to tailor their income for their personal retirement plans.”
Since last year’s Budget, LV’s research and development team has been working on “some exciting new propositions”, Mr Rowney added.
He stated only that the group would be launching the new retirement account proposition in April, “enabling easy quotation and purchase of multiple products together, for example variants of annuities and drawdown in one policy”.
Providers claimed clients who may consider the one-year option include those who cannot stay in their current pension scheme, or those who need to take an income now but want the security of knowing what their remaining fund value will be worth in a year
Pensions expert Ros Altmann previously labelled these products “defective”, stating that they are not in customers’ best interest as they pay a “very poor rate” of around 0.5 per cent interest for the year.
She also claimed they are often sold on a ‘non-advised’ basis, with those selling the products receiving undisclosed commission.
Elsewhere, LV’s savings and investment sales - predominantly with-profits investment bonds - rose 66 per cent. Other increases were to be found in equity release (up 13 per cent to £105m from £93m year-on-year) and protection (up 11 per cent to £217m from £195m).