3rd September 2015
Almost £2.5bn worth of payments – the equivalent of £27m a day – has been made to customers in the first three months since the introduction of the new pension freedoms, according to the Association of British Insurers (ABI).
New ABI figures for April, May and June also show £2.3bn has been used to buy nearly 37,500 regular income products, such as either pension annuities or income drawdown products.
The figures also show that £1.3bn has been paid out in cash lump sums, with an average payment size of just under £15,000 and £1.1bn has been paid out via 264,000 income drawdown payments, an average payment of nearly £4,200.
Meanwhile for funds being invested into drawdown products and annuities:
ABI’s director for long terms savings policy, Dr Yvonne Braun, said: “These figures are a testament to how well pension providers have adapted to the radical new approach to pensions which came into force on April 6th. They also show the popularity of the reforms. Many thousands of people have accessed their savings to get extra cash as they approach retirement. Meanwhile annuities, which guarantee an income for life, and income drawdown are proving attractive to those with larger pension pots.
“Working out how we pay for our growing life expectancy is a vital issue for the UK. The pension freedoms should be able to play an important role in helping retirees shape their income to suit their financial needs over the rest of their lives. However, people will only be able to benefit fully if they have been able to build up enough in savings during their working lives. Creating a stronger savings culture is therefore crucial.”
Looking at the ABI numbers, Hargreaves Lansdown head of pensions research Tom McPhail believes that the pension freedoms appear to be having their desired effect and investors are making full use of their new opportunities.
He added: “There are several reasons to be encouraged by these numbers but also one serious cause for concern. Annuity demand is holding up well, with significantly higher average transaction values, so clearly many investors recognise the importance of a secure income; the payment of small ad-hoc funds is also probably a more efficient solution for all concerned. The increase in transaction numbers is also an indication that investors have a healthy interest in their retirement savings. However the fact that so few people are shopping around shows that much more needs to be done. Politicians and regulators must focus on improving the pension withdrawal process; the goal should be for engaged and well-informed investors to be shopping around in a competitive market place; this is clearly not happening adequately at present.”