30 Mar 2016

ABI data reveals annuity revival

Data from the Association of British Insurers has revealed that annuities are starting to see a rise in popularity following their post-pension freedom fall.

During the fourth quarter of 2015, 21,200 annuities were sold, which is worth £1.1 billion, compared with 19,700 drawdown policies, worth £1.4 billion.

The data found that annuity sales are currently almost on par with drawdown sales since the reforms came into place.

Overall, £3 billion has been paid out in 213,000 cash lump sum payments since April 2015, with an average payment of £14,800.

A total of £2.9 billion has been paid out via 835,900 income drawdown payments, with an average payment of £3,500.

With regards to funds invested in new products since the reforms came in, £4.2 billion has been invested in 63,600 income drawdown products, with an average fund of £66,000.

In total, £3.3 billion has been invested in around 61,700 annuities, making the average fund invested nearly £53,000.

The ABI states that smaller pots are commonly taken as lump sums, while larger pots are still used to access a regular retirement income, with an average fund invested of £59,600.

Additionally, almost £7.5 billion has been invested to buy nearly 125,500 regular income products, either in the form of annuities or income drawdown products.

Another observation found is that people tend to use drawdown as a regular income product, with 65 per cent withdrawn in the fourth quarter being worth £1,000 or less.

The data also suggested that the amount of cash lump sum withdrawals is decreasing, as demand settles following the reforms.

Only £660 million was withdrawn in cash in the fourth quarter, compared to £1.3 billion and £1.2 billion in the second and third quarters respectively. Over half of cash withdrawals were less than £10,000.

Yvonne Braun, the ABI’s director of policy for long term savings and protection said that following some initial pent up demand, the number of people accessing their pension pot as cash in one go has settled down.

“Annuity sales are beginning to see a revival, with more annuities than drawdown products sold in the last quarter; this shows people still really value a lifelong guaranteed income.”

By Samantha Atherton