Analysis of data from over 150,000 advised annuity cases has found that demand for single life annuity products via financial advisers fell 4.8% in June compared to May. In total, 43.8% less were sold in the month than in June 2013, and 58% less than at the start of this year, as consumers wait to receive guidance and understand the full scope of their retirement options from April 2015.
Despite the fall in annuity activity, average retirement incomes have climbed. The average single life annuity secured an income of £3,552 per year in June, up by 3.7% from £3,426 in May. This is the highest in at least a year, and compares to £2,942 in June 2013.
The increase has been triggered by a combination of larger pension pots and annuity rates ticking up. The average pension pot for annuitants at retirement is at its highest level in at least two years, hitting £65,232 in June. This is an increase of 3.3% on May, and 13.3% higher than a year ago (£57,560). Four of the last five quarters have now seen year on year increases, pointing to an encouraging longer-term trend.
Meanwhile, standard annuity rates have hit their highest level since January. The average single life standard annuity rate stood at 5.44% in June, up from 5.11% in June 2013 and a slight increase up from 5.42% in May.
Dave Miller, Executive General Manager, Sourcing at IRESS, commented:
“Those planning to retire have seen a seismic shift since March, and the dust is far from settled. Annuities demand has been hit in the short-term, as consumers understandably hold fire until they have received guidance or see the extent of their options in April. While demand for annuities may not hit previous heights, the protection they offer against increasing longevity ensures they will remain relevant to financing retirement, especially as innovation accelerates in the space.
“In this context, it is a step in the right direction that income is climbing, with rates inching up and pot sizes reaching their largest in two years. Some new retirees may be opting to cash in smaller pots rather than annuitise, but the longer term trend suggests we may be seeing a steady shift towards building greater savings. This will only be boosted by the long-term impact of auto-enrolment and the publicity given to the importance of pensions savings since the Budget.”
The new quarterly report also highlights the variation in annuity rates prospective retirees may face. In June, the average best rate available for a standard single life annuity was 5.73%, compared to the average worst rate of 5.02%. For the average annuitant, this amounts to £469 a year – a difference in income of 12.5%. Over the course of a 20 year retirement, this amounts to £9,381.
There are also signs that awareness of enhanced annuities is increasing. At present, 28% of annuitants secure some form of an enhanced annuity due to a declared medical condition, compared to 12% in June 2012. 22% declare they are smokers, compared to 10% two years ago. These are able to benefit from an average rate 0.61% higher than that for non-smokers, representing 11% greater annual income for the average pot size.
Dave Miller adds:
“Guidance provides an opportunity to boost general understanding of the growing range of options among those who may not have sought advice previously. However, financial advisers will play an incredibly important role helping consumers select the most appropriate products for their particular circumstances. Part and parcel of this will be ensuring they don’t miss out on the best possible rates if they do annuitise, given the variation among providers. Equally, continuing to build awareness of eligibility for enhanced annuities will be crucial to ensuring the best possible outcomes.”
