Speaking to the Treasury select committee, McDermott said that just 11,000 annuities have been bought this year compared with 89,000 in 2013.
Duncan Jarrett, Managing Director, Retail at Aegon UK, commented:
“The challenge now facing those at retirement is how to generate a regular income. The ability to take cash as and when you need it from your pension might work well for those opting for a phased-retirement whereby they retain a regular income through work but for those who are fully retired, a regular income is likely to be a priority.
“The market is responding to this customer demand, with alternative income products including guaranteed drawdown which is popular in the US. These products allow retirees to keep their pension invested in the stock market with potential for growth, but also offer a guaranteed minimum income. Unlike an annuity they are flexible and retirees can take their savings elsewhere at any point.”
Richard Stone, Chief Executive of The Share Centre, added:
“In April of this year we saw considerable changes to private pension legislation, with potentially significant implications for personal investors. Instead of having to conform to traditional means of investing a pension pot at maturity, investors are now able to take control of funds and use vehicles such as ISAs with more flexible means of access.
“Six months after the changes, The Share Centre has seen a 13% increase in those aged 55 and over holding ISA accounts, compared to the same period last year. This demonstrates that investors are exploring different savings options and taking an active approach. Furthermore, over the same period, the value of these accounts has increased by 22% which further supports the trend we have seen since 6 April when the changes were bought in.
“We also welcome the Chancellor’s announcements in the 2015 Summer Budget including the prospect of a more radical review of the tax treatment of pension contributions and withdrawals which could bring the pension regime into line with the ISA regime. Other changes, for example further reductions in the lifetime allowance, all indicate Government policy is moving toward the ISA being the personal savings vehicle of choice. The pension freedoms have been well publicised in terms of what it means for those at or near retirement age. As important is the message Government policy is sending to those starting out in work and just beginning to think about retirement saving. For those at that significantly earlier stage in life the ISA is a logical vehicle of choice and we believe the Government is clearly signalling that to be the case.”
