The number of drawdown contracts sold by ABI members has more than doubled compared to Q3 2013, with a reduced average pot size, demonstrating that drawdown is opening to a wider market. The value of drawdown contracts sold by ABI members is around 50% that of the value of annuity sales, compared to 14% a year ago.
The number of annuities sold fell by 14% on the last quarter, and by 56% compared to Q3 2013. The number of annuities sold has fallen further than the value of those annuities, suggesting that more people with smaller pension pots are deferring or taking cash.
While external annuity sales have fallen, internal annuity sales have remained at similar levels. This is likely to reflect people with guarantees continuing to take advantage of them, and means that there are now a greater proportion of internal annuities (65%) and a smaller proportion of annuities are enhanced (22%).
Rob Yuille, Policy Adviser, ABI comments:
"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."
Andrew Tully, pensions technical director, MGM Advantage commented:
"Despite there being a clear demand for flexibility, at MGM we are still seeing a clear demand for annuities, with good sales across Q2 and Q3. When customers describe what they want from a retirement income product, security and guarantees, they are describing an annuity type product.
"What is really concerning about these numbers is that the open market option message appears to be lost in translation with the noise around the freedom and choice agenda. Internal sales are holding up, while the external, shopping around, market is down. This means people are not receiving the better value provided by enhanced annuities.
"As we move closer to the new pensions freedoms, we need to put customers at the centre of what we do. If people decide not to take up the offer of free guidance or look for advice, we need to find a way of ensuring a second line of defence protects consumers and ensures they don’t end up with products which do not fit their needs or provide poor value. Or I fear we will repeat the mistakes of the past."
