The number of annuities purchased fell by more than a fifth while the drawdown market grew 4% in the six months to March, latest data from the Financial Conduct Authority (FCA) has shown.
The FCA’s latest data bulletin out on Friday showed the number of annuities purchased fell 21% in the six months between October 2016 and March 2017, while the drawdown market continued to grow.
This means more than twice as many retirement pots are currently moving into drawdown than annuities, with 83,687 drawdown polices purchased in the period vs 33,561 annuities.
The data findings fit in with the overall trend since the pension freedoms, which has seen the number of annuities dwindling with drawdown proving an increasingly popular option.
Hargreaves Lansdown head of policy Tom McPhail said: “Demand for drawdown is now outstripping annuities by almost three to one; it is clear investors have limited appetite for guaranteed incomes at today’s relatively low interest rates.
“The worry is that for many people, at least some guaranteed income is extremely important, particularly at older ages. If this trend continues much further we may not have an annuity market at all and that won’t be good for investors.”
Drawdown was particularly popular for pots worth £250,000 or more, with 81% of retirees choosing the product between October and March.
The data also showed more than two-thirds (69%) of customer going into drawdown sought financial advice, compared with about a third (34%) of those purchasing an annuity.
Full withdrawal most popular option
Full cash withdrawals continued to be the most popular option for the over-55s, accounting for more than half (54%) of all pension pots accessed between October and March.
However, the number of pots fully withdrawn has decreased markedly over time since the beginning of pension freedoms: 244,020 pots were accessed in the six months post-reforms vs 150,806 between October and March 2017.
The vast majority (86%) of fully withdrawn pots held a value of less than £10,000. On the other side of the spectrum, pension pots valued at £250,000 or more, a mere 6% were withdrawn fully.
The FCA said: “There was an initial spike in pension access activity in the six months after the introduction of the pension freedoms in April 2015. Subsequently the market seems to have settled down.”
Firms don’t trust the watchdog
The data bulletin also summarised the FCA and Practitioner Panel Survey, which was used to gather the industry’s views of the FCA’s effectiveness as a regulator.
While it found most firms (77%) were satisfied with their relationship with the regulator, trust in the watchdog appeared to be an issue among firms.
Fewer than half (44%) of respondents felt FCA supervisors and staff exercised good judgement, or were experienced enough to do their job properly.
Just more than two-fifths (42%) of respondents felt the FCA had sufficient knowledge to understand their firm, while 53% thought the regulator was transparent.
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