Annuity sales have fallen by 37.5 percent between Q1 and Q2 2014, down to an annualised rate of under 200,000; this compares to the 420,000 sold in 2012.
There has been an increase in both the mean (£38,600) and median (£25,600) pension pot size used to buy an annuity; the ABI speculates that this may be because more people with small pots are taking advantage of the recent relaxation in rules making it easier to take those small pots as a cash refund. The ABI data also shows that 29 percent of all annuities are enhanced annuities, however 59 percent of external annuities (ie annuities purchased with a different company to the one the pension pot was originally built up with) were enhanced thanks to medical or lifestyle characteristics which lead to an increased annuity rate, compared to just 8 percent of internal annuities (ie stayed with the same provider). Hargreaves Lansdown Comment: It is not surprising to see annuity sales plummet in the wake of the budget announcement. We know from our own research that many investors are treading water to see what their options are before committing to a retirement income strategy. Interestingly we also know that over 90 percent of investors do value a guaranteed income in retirement, so perhaps many of them will still end up buying an annuity.
We are becoming increasingly concerned about the volume of short-term retirement deferrals which is building up and the potential tidal wave of activity which could ensue around April next year. Investors could end up facing administration delays if some pension providers struggle to cope with demand. Anyone who is interested to use the new drawdown rules might want to consider acting sooner rather than later as they can use drawdown now and still keep their options open for next year. The most striking statistic in the ONS research is that 45 percent of men and 49 percent of women below retirement age in Great Britain did not have a private pension in 2010 -2012.
Even in the group aged between 50 and State Pension Age, 35 percent of men and 39 percent of women did not have a private pension. Amongst those with degree level qualifications, 28 percent of men and 29 percent of women don’t have a private pension. This rises to 68 percent of men and 83 percent of women for those with no qualifications. Hargreaves Lansdown Comment: Whilst this analysis is based on pre-autoenrolment data, we know from elsewhere that many millions of working age adults are missing out on a pension as a result of gaps in the auto-enrolment programme. Auto-enrolment is providing part of the solution but we still need to do much more both to increase participation rates and to increase the contributions from those who are now members of a pension.