18th February 2014
The number of annuities taken out in 2013 has fallen dramatically by around 16 per cent according to the Association of British Insurers.
In 2013 ABI member companies – which comprise the majority of the market – sold 353,000 annuities worth £11.9bn in total.
Some 48% of annuity sales were external in 2012 and 2013, compared to 31% in 2003 and 45% in 2011. This means that a greater proportion of customers are shopping around rather than taking out an annuity with their existing pension provider.
The ABI says that the proportion of enhanced, i.e. medically underwritten, annuities continues to rise and was at 28% in the fourth quarter of 2013. The ABI says that more people with the smallest pots are now buying enhanced annuities.
Pension platform Hargreaves Lansdown says the fall in annuity sales comes against a backdrop of the baby-boomers hitting their mid-sixties. Hargreaves Lansdown head of pension research Tom McPhail says that it would be logical to expect a surge in annuity sales, based purely on this demographic data.
“The data also shows that shopping around was worst amongst those with the smallest pension pots. Hargreaves Lansdown is calling on the Treasury to introduce reforms to the small pots ‘Trivial Commutation’ rules in this year’s Budget on 19 March which would allow people to get the cash back.
“The retirement income market appears to be shifting, with demand for annuities collapsing and surging interest in drawdown. The first wave of baby boomers has passed age 65 but even so, we would expect annuity sales to stay high yet they were lower in 2013 than in 2011, when fewer people were reaching their mid-sixties. There are lots of factors at work here, including the wider economic background, sentiment about future interest rates and actual retirement ages; low annuity rates in recent years compared to historic averages may have had an impact too.
“We recommend that every retiring investor should go through the 3 Ts: Timing, Type and Terms, to decide when they want to retire, what sort of retirement income they want and finally where they can get the best deal.”
Hargreaves has also surveyed its customers in a bid understand to why they are deferring the annuity decision.
Source Hargreaves Lansdown: 1331 respondents