Sales of retirement annuities hit a record high last year, according to the Association of British Insurers (ABI). In 2023, annuity sales rocketed with a total value of £5.2 billion, marking a 46 percent increase compared to 2022.
This is the highest annual value since 2014 when pension freedoms were introduced, giving retirees more flexibility over their savings. These freedoms, effective from 2015, offered over-55s various options on how to use their defined contribution (DC) pension pot.
Before these changes, many would have bought an annuity, which provides a guaranteed income. The ABI suggested that the strong sales were due to higher interest rates, as more people sought a reliable retirement income. Last year also saw a bumper fourth quarter with £1.5 billion in annuity sales, following a strong third quarter when sales totalled £1.4 billion.
Level-only annuities, which pay the same income every year but can be vulnerable to inflation, remained the more popular version of the product, the ABI said. This type of annuity has a higher starting income than an escalating annuity which provides an income that increases every year.
Last year also saw nearly two-thirds (64 percent%) of annuity buyers shop around taking an annuity from a different provider to the one they held their pension savings with.
However, only 29 percent of customers who bought an annuity did so with the help of professional advice.
Rob Yuille, head of long-term savings policy at the ABI, said: “Securing a guaranteed income for life remains an important part of the mix of options for people to consider at and during retirement, and it’s great to see more people taking advantage of the protection they have to offer. It is also encouraging to see more people exploring the market to secure a higher income.”
“However, we’d like to see more people taking advantage of professional advice and new forms of targeted support for consumers to ensure they can enjoy the best possible retirement.”
Stephen Lowe, group communications director at retirement specialist Just Group, said: “It’s good to see the majority are finding their way to the best deals which is a significant improvement on the past, but there are too many people still missing out.”
Pete Cowell, who is the head of annuities at Standard Life, has said: “Annuities have benefited from rising interest rates and it’s clear that customers and advisers are responding to this, and seeing the benefits of having a guaranteed income as part of the wider mix of retirement income solutions.”
Furthermore, he noted: “While an annuity cannot be changed once it’s set up, there are various annuity options available and different ways annuities can be used. Annuities can also be purchased in stages throughout retirement or later in life, to help combat the effects of inflation on hard-earned savings.”
Additionally, he pointed out: “Average annuity rates are currently over 6.6 percent for a healthy 65-year-old (a £50,000 pension pot with no additional benefit features) and people should remember the importance of shopping around when looking for the best rate.”
Several tools are available to those seeking assistance, with Cowell advising: “While people can always consult a financial adviser to help them start to make decisions around which annuity types are most suitable for their needs, there is also free impartial guidance available from Pension Wise, a service from MoneyHelper.”
Meanwhile, former pensions minister Sir Steve Webb, now a partner at consultants LCP (Lane Clark & Peacock), echoed these thoughts by saying: “Whilst pension freedoms rightly gave people choice about whether to buy an annuity, it remains the case that the certainty of an annuity will be the right answer for some people.”
“In particular, managing a pension drawdown pot into your 70s and 80s is likely to be increasingly challenging, especially when you have little idea how long the pot needs to last.”
“For many people a mix of the flexibility of drawdown and the security of an annuity is likely to be a good outcome, especially with improved annuity rates, so it is welcome to see renewed interest in these guaranteed income products.”
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