Annuities are beginning to see a revival, as retirees shun drawdown and cash withdrawals for a guaranteed income, according to latest figures from the Association of British Insurers (ABI). Margaret Taylor examines the data
Data from the ABI, covering the sales of its insurer members, showed the ‘rush to cash’ in pension pots following the government’s pension freedom reforms settled down over the year, with annuity sales picking up at the end of 2015.
Annuity sales took a hit in the immediate aftermath of the reforms, which gave all defined contribution savers over the age of 55 unfettered access to their savings from last April.
In the second quarter of last year 18,200 annuities were sold, alongside 18,800 drawdown products. This compared with 21,200 annuities being sold in the last quarter of the year, alongside 19,700 income drawdown products.
Similarly, £990m was invested in annuities in Q2, while £1.3bn was taken as cash lump sums. By Q4 annuity sales had risen to £1.1bn, while £660m was taken as lump sums.
Director of policy for long-term savings and protection Yvonne Braun (pictured) said: “Following some initial pent-up demand, the number of people accessing their pension pot as cash in one go has settled down.
“People are taking a sensible approach and considering how they will pay for their whole retirement. Annuity sales are beginning to see a revival, with more annuities than drawdown products sold in the last quarter.
“This shows people still really value a lifelong guaranteed income.”
‘Modern Pathways’
The figures also confirmed previous indications that people who have saved the least for their retirement are the most likely to cash in their pension pots under pension freedom, while those who have built up bigger retirement funds are more likely to invest in income-generating products.
The data showed that, n the nine months after the reforms, £3bn was paid out as lump sums to just over 213,000 people, giving an average payment of nearly £15,000.
Over the same timeframe, £3.3bn was invested in around 61,700 annuities, making the average amount invested nearly £53,000, and £4.2bn was invested in 63,600 income drawdown products, giving an average sum invested of just over £66,000.
Trade union centre the TUC warned the market innovation the government promised has “failed to materialise”.
Policy adviser Tim Sharp said: “At retirement, savers remain stuck with a stark choice between taking cash and buying annuities they may feel don’t suit their needs.
“Savers with smaller pots seem to have particularly limited options. We desperately need greater urgency in developing modern, good-value retirement income pathways that offer longevity insurance to guard against poverty in later old age.”
However, the ABI’s Braun argued the priority was making sure people save more for their retirement. “Our key challenge remains ensuring people save enough for their retirement,” she said. “With increasing life expectancy and declining final salary pension provision, we must turn our attention to helping customers grow bigger pots.”
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