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Annuity sales outstrip drawdown for first quarter since freedoms launch

Huw_Evans

The last three months of 2015 saw providers sell more annuities than drawdown products for the first time since the pension freedoms were launched, according to the Association of British Insurers.

ABI director general Huw Evans told Parliament’s Work and Pensions committee Q4 saw members of the trade body sell 21,000 annuities, compared to 19,500 drawdown products.

Income drawdown product sales exceeded annuities in both the quarters after April 2015, and the trade body reports that by September 40,600 annuities had been sold, compared to 43,800 income drawdown products.

Evans says: “Annuities clearly took a massive hit when the reforms came in, for obvious reasons. But what’s interesting is an emerging pattern that customers are beginning to go back to annuities a little bit.

“We are beginning to see that this tranche of customers are thinking a little more about what are the respective merits.”

He adds: “You would expect at a time when the equity markets are challenging and volatile that people might be more wary about drawdown, but I think there was also an overreaction against annuities.

“There’s a rebalancing going on.”

At the same time, Evans notes the trade body’s modelling shows basic-rate taxpayers saving into a newly launched Lifetime Isa would have a fund worth 37.5 per cent less in retirement by foregoing the employer contributions and investment income associated with workplace pensions.

The ABI boss also warns a planned restructure of state-backed financial guidance runs the risk of losing focus on financial capability.

He says: “What happens to the rest of the people who are neither on the point of retirement nor in debt? How do we tackle their financial capability and build that up and develop that so they’re taking the right choices throughout their lifetime?

“The Lifetime Isa that we’ve been talking about is a classic example of a choice that they would be making in the earlier part well ahead of when they retire.

“It’s really important that whatever the organisation infrastructure, however the deckchairs are rearranged, the financial capability focus isn’t lost. Because it’s critical at all stages of adult life to making the right financial choices.”

Evans says this is particularly important in the role of a commissioning organisation for broader money guidance, which he warns may gravitate towards providing debt advice rather than improving financial capability.

He says: “Actually driving people’s overall level of financial understanding is a much more difficult thing to measure.

“That will be the test – how transparent will this new commissioning body be and how well rounded will its objectives be for the way in which it chooses to spend the money it raises from the industry?

“It could work but it will need quit a lot of attention and scrutiny to make sure that it has a well-rounded remit and not a narrow one.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Bear in mind ABI members do not cover the whole Sipp and drawdown market, probably half to two thirds using FCA data. However the annuity market is only covered by ABI members. I’m unclear here how a ‘sale’ of a drawdown product is recorded and at what value? surely apples and oranges there. Within the confines of ABI members it is fair to report the trend but should be caveated that it may not apply to the whole market.

  2. PS My last post. If there is any doubt that the providers are ken to push drawdown you only have to consider the plethora of events at which this option is promoted and the providers flog their wares. Rather redolent years ago of providers pushing pension transfers. I wonder if it will lead to the same result.

  3. In case you mislaid my original post:
    Good sense is beginning to prevail. There will be those from providers, to fund managers to platforms to advisers who will gainsay this and fight hard to ensure that the alternatives to annuities prevail – after all, it is in their better interests. But honest advisers will still point out the considerable pitfalls and the market itself will serve as a warning. That the Exchequer will gain less is in the case another desirable outcome.

  4. Stewart Hutcheson 23rd March 2016 at 4:17 pm

    On a similar line to Gavin’s comment do these stats take into account a pension already on a wrap/platform that purely crystallises into drawdown?

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