11th September 2014
Annuity sales have plummeted by more than a third as a growing number of pension savers weigh up their retirement income options on the back of the new pension freedoms.
According to sales figures from industry body, the Association British Insurers sales of annuities, the guaranteed income for life retirees swap their pension for, collapsed by 37.5% between the first and and second quarter this year. This takes the annualised sales rate down to under 200,000, a massive fall compared to the 420,000 sold in 2012.
In the Budget this year it was announced that retirees would from April next year be allowed to do as they wish with their pension savings and would no longer be forced to eventually buy an annuity – a product that has long been seen as poor value.
Tom McPhail, head of pensions research at financial adviser Hargreaves Lansdown believes the fall in sales should come with little surprise in the wake of the budget announcement.
He said: “We know from our own research that many investors are treading water to see what their options are before committing to a retirement income strategy. Interestingly we also know that over 90% of investors do value a guaranteed income in retirement, so perhaps many of them will still end up buying an annuity.”
McPhail added that he is are becoming increasingly concerned about the volume of short-term retirement deferrals which is building up and the potential tidal wave of activity which could ensue around April next year.
He said: ”Investors could end up facing administration delays if some pension providers struggle to cope with demand. Anyone who is interested to use the new drawdown rules might want to consider acting sooner rather than later as they can use drawdown now and still keep their options open for next year.”