Purchasing an annuity has tended to be the most popular choice for those entering retirement, with such a product guaranteeing a set income for life. However, figures from the Association of British Insurers (ABI) found that the popularity of annuities seems to be declining, with sales falling by 16% during 2013.
The research found that there were 353,000 annuities sold by ABI members over the year, totaling £11.9bn, but it's still a significant drop on the year before. However, it seems that those approaching retirement age might be heeding advice and shopping around – 48% of those sales were made on the open market – while enhanced annuities are on the rise too, accounting for 28% of sales in the final quarter of 2013.
The size of the pension pot was found be a good indicator of whether someone will shop around, with those who have small pots of under £10,000 being less likely to do so (just 46% with smaller pots shopped around compared to 63% in total), with most internal annuities – i.e. those purchased through the current provider – being bought by those with small pots.
The overall reduction in sales may be due to concerns brewing in the sector, but ABI members suggest that a key reason for the decline was that a larger number of clients were choosing to defer their retirement and continue working for longer.
Additional figures from Hargreaves Lansdown, meanwhile, point to the rising popularity of income drawdown – a potential alternative to annuities – with demand for such products increasing by 40% in the last year.
"The fact that annuity sales declined in 2013, when many experts were forecasting another bumper year, suggests that many consumers are now examining all of the options open to them such as income drawdown or delaying retirement rather than simply rushing into an annuity purchase," said Richard Eagling, head of pensions at Moneyfacts.
"The intense media coverage we have seen questioning the value of money offered by annuities may well have influenced some consumers, whilst the recent upturn in annuity rates is likely to have encouraged some to wait and see whether a further rise is on the cards before locking into a retirement income for the rest of their lives."
With rates slowly edging up it'll be interesting to see whether this decline in sales continues – or whether pre-retirees will want to capitalise on those good rates. But, whether you're searching for an annuity now or want to see what happens to the market first, the key will always be to shop around. Use our annuity service to find the package that could meet your retirement needs and deliver the best income possible.
Looking to increase your income in retirement by up to 40% - Use our online annuity planner
Looking to speak to somebody direct about annuity rates? Call our partner Premier Retirement Services on 01737 233 435
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.
Moneyfacts.co.uk will, like most other websites, place cookies onto your computer’s
hard drive. This includes tracking cookies.