Annuities could soon overtake drawdown again as market volatility drives consumers to seek caution, according to new research be eValue.
After the introduction of the freedoms last year, it was feared annuity sales would suffer due to consumers preferring a more flexible withdrawal of pension benefits.
But recent data concluded preference for guaranteed income has actually risen, with 41 per cent of retirees selecting an annuity – an increase of 9 per cent since the the freedoms came into effect in April last year. Flexible income products have become less popular, falling from 54 per cent to 46 per cent over the same period. Market volatility has been a key factor, by highlighting the capital risks inherent within income drawdown products.
“It’s not surprising to see annuity sales continuing to grow because there is a fundamental need in most people’s portfolio to at least have covered essential expenditure,” said Steve Lowe, group communications director at Just Retirement, adding a growing number of customers were not limiting themselves to either product, “People are taking a blend of guaranteed income for life, whether that be state pension, defined benefit pension or indeed an annuity income, and mixing it with more flexible or unsecure income.”
Data released in March from the ABI correlated with this, and showed annuities outstripped drawdown for the first time post-freedoms in Q4 2015. A total of 21,200 annuities were sold, worth £1.1bn – whereas drawdown witnessed sales of 19,700, albeit with funds worth £1.4bn.
Despite this research, Aegon UK recently sold two-thirds of its UK annuity portfolio to Rothesay Life for £6bn, with the process taking place over the next two years.
“The sale was not driven by the freedoms, but our overall strategy puts us in a position to benefit from them,” Nick Dixon, investment director at Aegon said, adding its intention is to divert resources towards a retirement platform.
“By focusing on the platform, we’re able to offer workplace savers and individuals with a financial adviser, a wide range of options to accumulate wealth and then a service which gives them a great deal of choice as to how they manage an income in retirement.”