In addition the average pot size of an annuity is bigger, as more people with smaller pots are taking cash following the increased limits announced in the Budget.
A greater proportion of annuities are internal, but a greater proportion of those with pots below £5,000 are switching. A higher proportion of larger pots are being used to buy internal annuities; this is likely to be due to people continuing to take advantage of Guaranteed Annuity Rates.
The proportion of enhanced annuities purchased, as a proportion of total sales, is unchanged, but of the external annuities sold a higher proportion are enhanced compared with previously. Enhanced annuities also make up a larger proportion of annuities bought with small pots.
There has been an increase in sales of income drawdown contracts, but with a smaller average pot size than previously, as some providers reduced their minimum fund size for drawdown in line with the shift in policy towards pension flexibility.
Commenting on the figures, Yvonne Braun, Head of Savings, Retirement and Social Care, ABI, said:
"The 2014 pension reforms radically overhauled the pensions market. This ABI data provides a useful analysis of the immediate choices customers have made following the Budget. It suggests customers with smaller pots have immediately started to use the new freedoms to take their cash lump sum, which is something the industry has campaigned for. The data also shows where customers with small pots choose to annuitise they are increasingly taking enhanced annuities.
"Although It is too early to determine how customer behaviour will continue to evolve between now and when the Budget reforms come fully into effect in April 2015, there are still a significant number of savers who will want the regular income provided by an annuity. We would expect that many will choose to annuitise later as a result of the new measures."
Dave Miller, Executive General Manager, Sourcing at IRESS, commented:
“The Budget’s changes have taken their toll on annuity sales, as many of those at retirement wait until they have received guidance and clarity on the extent of their options from April 2015. While demand is unlikely to hits its previous highs after the dust settles, with drawdown and investment orientated at retirement products likely to play an increasing role, annuities will remain a key pillar in retirement planning. As longevity continues to increase, accumulated savings will need to be able to stretch further, highlighting the on-going need for products which provide guaranteed income until death. We’ve already seen a flurry of shorter term products, but we anticipate product variety will increase further to match the broadening approaches consumers will take.
“Although we are seeing signs that awareness is broadly improving, take up of enhanced annuities remains painfully low among annuitants with the smallest pots. Our research shows for the average eligible annuitant, securing an enhanced annuity could increase post retirement income by 11%, so it is crucial that those who qualify understand their options. The introduction of free guidance should provide a new opportunity to boost the awareness of enhanced annuities, and could act as a catalyst among those that are traditionally less likely to seek financial advice, though it is too early to say whether this will in fact be the case.”
