Following the introduction of the pension freedoms in April, many people voiced concern that this would spell the end of annuities, with retirees instead rushing to empty their pension pots and receive the money as a cash lump sum. However, it seems that these fears were premature, and that annuity sales are actually now on the increase.
At the Association of British Insurers' (ABI) biennial conference, held yesterday (3 November), it was revealed that annuity sales have enjoyed their first quarter-on-quarter growth in three years: in the three months from July, sales reached a total of 22,380 with a value of £1.17 billion, which is a significant increase from sales recorded in quarter two, which totalled 18,200 (£900 million).
These figures come despite pension savers withdrawing around £4.7 billion since the pension freedoms came into force in April. However, the ABI found that while holders of smaller pots are generally taking the money as cash, larger pension pot holders are tending to invest this money to produce a retirement income.
Looking at the withdrawal figures highlights this more clearly: since the beginning of the freedoms, £2.5 billion has been paid out in cash lump sum payments, with an average withdrawal of just £15,000. Meanwhile, £2.85 billion has been invested in income drawdown products at an average fund of £65,000, and £2.17 billion has been put into annuities, with an average fund of nearly £53,300. This suggests that retirees are taking a "common sense" approach when it comes to their retirement funding, putting to rest fears of pensioners splashing the cash and running out of money in later life.
"Despite some ringing the death knell for annuities, this seems to have been premature," commented Dr Yvonne Braun of the ABI. "An increasing number of people are recognising the value of a guaranteed income… There are also initial signs that the number of people accessing their pension pots as cash is beginning to settle down, with larger pots continuing to be used to buy retirement income products."
In other good news, it seems as though retirees are heeding the advice to shop around before buying a retirement product: 60% of people were found to have changed provider before purchasing an income drawdown product and 40% moved providers when buying an annuity. This is a promising finding and suggests that retirees are becoming savvier when it comes to making decisions when planning their retirement income.
If you are approaching retirement, it is time to start making some big decisions. The best thing to do is to seek advice: you can start by contacting Pension Wise, which is a free Government service that offers guidance to pre-retirees. Contacting an independent financial adviser is an ideal next step, as they can help you to identify which products may be best suited to you. You can also check out our no-obligation annuity planner to see if this product is right for you.
If your retirement date is still a little way off yet, then all you have to do is keep saving! Try to maximise your contributions to your workplace pension if you are already enrolled, and if you aren't, make sure you sign up! Remember that contributions are tax-free and your employer will also pay in a sum, so you are basically benefiting from free money. It's also a good idea to save into other savings vehicles, such as an ISA. Check out our ISA best buys to hunt down a competitive deal.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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