New statistics published by the Association of British Insurers have laid bare the havoc wreaked by Chancellor George Osborne’s radical Budget overhaul on the annuities market.
Information published by the trade body today shows year-on-year annuity sales plummeted 42 per cent in the second quarter, from £3.1bn in Q2 2013 to £1.79bn this year. The number of annuities sold during the period also fell year-on-year, from 89,896 to 46,368.
Third quarter annuity sales were down 50 per cent, from £2.92bn to £1.47bn.
However, the ABI says while external annuity sales have fallen massively as a result of the Budget, internal sales remain at similar levels.
The ABI says this is “likely” to be because people are continuing to take advantage of guarantees but according to the FCA only 50,000 of the 420,000 annuities sold in 2012 had a GAR, representing just 12 per cent of sales.
Fidelity Worldwide Investment retirement director Alan Higham says: “Guaranteed annuity rates are present in about one in ten policies across the market. So while this may be part of the explanation, it appears that internal customers continue to be unengaged and follow the default pattern of buying an annuity from their existing provider.
“A lot of providers will only offer an annuity, so in most cases the only way to get your tax-free cash quickly is to buy an annuity.”
Independent pensions consultant Ros Altmann, the Government’s adviser on older workers, says the stats are a sign of “huge market failure”.
She adds: “This is another example of insurers not looking after their customers properly. Lots of people are phoning their insurer wanting to get their tax-free cash and are being told if they want to do that, they have to buy an annuity.
“We need a proper duty of care on insurers because at the moment they are not treating their customers fairly.”
She adds that insurers continue to send “huge amounts of paperwork” to their existing customers.
The proportion of internal annuity sales rose year-on-year in both Q2 and Q3 (see table).
Drawdown sales surged 68 per cent in Q3, from £457m to £770m, while the number of new contracts rose 123 per cent, from 5,480 to 12,212.
ABI policy adviser Rob Yuille says: “Pension flexibility continues to have an impact on customer behaviour in the retirement market, and it is clear that there are many people waiting to make a decision about what to do with their pension. We are seeking to explore beyond the statistics with members to identify and explain the trends in customer behaviour in this transitional year.”