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Annuity business trebles and is set to double again

Sales of annuities have almost trebled in the past 10 years and the market will more than double again by 2012, according to the Association of British Insurers.

Conventional annuity sales rose from 120,000 new contracts in 1994 to 340,000 in 2003 and the market is expected to rise from 7.2bn in 2002 to 18.1bn in 2012 if demand continues at the same rate. This is before demand for enhanced annuities is factored in.

The ABI also believes that if the Government launches longer-dated gilts, which is an issue the Debt Management Office is consulting on, then annuity rates could be bolstered, providing further impetus to the market.

If demand can be improved from current rates, then conventional annuity sales could hit 19.7bn, it says.

Head of pensions and savings Joanne Segars says demand will be driven strongly by demographic change and the continuing switch from final-salary to money-purchase pension schemes.

She says: “People are living longer and families are getting smaller. These and other factors are already beginning to have a significant effect on the annuity market and we expect this to increase. As we said in our recent submission to the Pensions Commission, demand for annuities will increase, whether it recommends greater compulsion or a revived voluntarist system. Annuities offer a guaranteed, regular and secure income in retirement and, according to our research, these are all features that people want.”

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