Annuities sales continue to fall after pension freedom changes

Annuity sales in the UK fell below new alternative drawdown arrangement for the first time earlier this year.

The number of annuity sales dropped 16% between October 2016 and March 2017, data released by the Financial Conduct Authority revealed on Friday.

Annuities are form of insurance for later life where the investor is entitled to a series of annual sums from retirement for the rest of their life.

There was an 8% decrease in the overall number of pension pots accessed in that six-month period compared to same period a year ago, due to a 21% fall in the number of annuities purchased and an 11% fall in the number of full cash withdrawals from the preceding six months.

The relatively new option of taking drawdown, where thanks to the pensions freedoms introduced by the government in 2015 retirees can withdraw funds from their pension pot rather than buying an annuity, were up 4% and full encashments were up 18%.

The FCA revealed that demand for annuities is greatest in the 65-74 age group, while drawdown is particularly popular among people with smaller pensions, with 84% of those accessing a pension pot of less than £10,000 taking the whole lot in cash.

There were 83,687 new drawdown plans, compared to 33,561 new annuities; 150,806 people cashed their whole pension in one go.

"Demand for drawdown is now outstripping annuities by almost three to one; it is clear investors have limited appetite for guaranteed incomes at today’s relatively low interest rates," said Tom McPhail, head of policy.

"The worry is that for many people, at least some guaranteed income is extremely important, particularly at older ages. If this trend continues much further we may not have an annuity market at all and that won’t be good for investors."