More savers deferring decision ahead of reforms

More savers deferring decision ahead of reforms

More savers are waiting to make a retirement product decision, data from the Association of British Insurers reveal.

The ABI’s retirement income statistics revealed that in the last three months of last year, 28,712 annuities were sold, a fall of 64 per cent compared to Q3 2013, with an average pot size of £41,900 which is 27 per cent up on the previous year.

In Q3 2014, 39,246 plans were sold, a 56 per cent fall on Q3 2013, while the average pot size was £37,300, a 15 per cent increase on Q3 2013.

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The ABI said the figures suggest that more people with smaller pension pots are deferring or taking cash, with the percentage fall in the number of annuities sold greater than the percentage fall in the value of annuities.

The data show 11,454 new income drawdown plans were sold by members, which equates to a 109 per cent increase on Q3 2013. The average pot size also fell 37 per cent in this period to £57,600.

In Q3 2014, 12,212 plans income drawdown plans were sold with an average pot size of £63,100, down 24 per cent on the year.

Rob Yuille, manager for retirement policy at the ABI said: “These figures show savers with larger pension pots continuing to buy annuities, while others are entering drawdown with smaller funds more than in the past.

“More people are clearly taking cash, but many are still making an active choice to buy an annuity with a small pot.

“This reflects the diverse needs and preferences of the population and is a reminder that savers should not be pigeon-holed or told their choices are wrong, but need advice or guidance to help them find the right solution for them.”

Alan Higham, retirement director for Fidelity Worldwide Investment, raised concerns that certain consumers still continue to buy annuities when it is not in their best interests following the results.

Mr Higham: “As pension freedom day draws closer it is no surprise that fewer people chose to buy annuities, preferring to defer any decision until after April. However, the figures suggest two areas of concern which are detrimental to consumer retirement outcomes.

“Firstly, the number of internal sales continues to hold up far more than pure external sales which suggests that there may be some element of default annuitisation. It is particularly likely to occur for people who want to take tax free cash but are defaulted into buying an annuity because their provider won’t offer any other option.

“Secondly, there is a significant number of annuities sold which could have been taken as a lump sum under the small pot or trivial pot rules. This makes me question whether consumers were aware that they did not have to buy an annuity.”