Annuity sales plummet by 60+% as drawdown doubles: ABI

Annuity sales plummet by 60+% as drawdown doubles: ABI

Annuity sales have plummeted by more than 60 per cent since last year, figures from the Association of British Insurers have shown.

The figures also showed that drawdown sales in the last quarter of 2014 were twice those of the previous year, although the ABI’s manager of retirement policy, Rob Yuille, said it was not all doom and gloom for annuities.

He pointed to the fact that the average annuity pot size had increased by 27 per cent – to £41,900 – compared to the last quarter of 2013.

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Mr Yuille said: “These figures show savers with larger pension pots continuing to buy annuities, while others are entering drawdown with smaller funds 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 pigeonholed or told their choices are wrong, but need advice or guidance to help them find the right solution for them.”

PeriodNumber of annuities sold% change (year-on-year)Value of annuities sold (£m)% change (year-on-year)Average pot size (£)% change (year-on-year)
Q4 201428,712-64%£1,204-55%£41,90027%
Q3 201439,246-56%£1,463-50%£37,30015%
Q4 201380,537£2,657£33,000
Q3 201390,414£2,922£32,300

Overall annuity sales for the last quarter of 2014 were 28,712, a reduction of 28 per cent on the previous quarter and 64 per cent on the same period in 2013.

The number of new income drawdown contracts signed between October and December was 11,454, which was slightly lower than the previous quarter but an increase of 109 per cent on the same period in 2013.

PeriodNumber of new drawdown contracts% change (year-on-year)Value of new contracts (£m)% change (year-on-year)Average pot size (£)% change (year on year)
Q4 201411,454109%£66031%£57,600-37%
Q3 201412,212123%£77068%£63,100-24%
Q4 20135,482£502£91,600
Q3 20135,480£457£83,400

However, the average drawdown pot size had fallen by 37 per cent, from £91,600 in the fourth quarter of 2013 to £57,600 at the end of 2014.

Enhanced annuities made up 28 per cent of all sales in Q4 2014, the same proportion as in the same quarter of the previous year.

The proportion of internal annuities had increased to 62 per cent at the end of 2014, compared to just 52 per cent in 2013.

Adviser view

Mark Hibbitt, director of Gloucestershire-based Sovereign Independent Financial Advisers, said: “I still think annuities have a future in certain circumstances where a client needs a guaranteed income.

“But clearly they are going to play less of a role, given the new freedoms.”