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UK gross sales of particular person annuities are on monitor for his or her finest 12 months in a decade, as increased rates of interest and new monetary guidelines push folks again to retirement merchandise with a assured earnings.
Insurance coverage teams bought £3.6bn of particular person annuities within the first half of 2024, in keeping with the Affiliation of British Insurers, an increase of greater than 50 per cent on the identical interval final 12 months.
That places the market on target for its finest exhibiting since 2013 — the 12 months earlier than then chancellor George Osborne’s “pension freedoms” Funds shook up the UK’s retirement panorama by slashing taxes on folks cashing out their pension pots.
Hovering gross sales had been mirrored in interim outcomes this month from a number of the largest UK insurers. FTSE 100 group Authorized & Normal took in an additional £1.2bn in premiums from particular person annuities after what was a report 12 months in 2023.
“Already final 12 months was a terrific 12 months, and what’s superb is that this 12 months we’ve doubled what we did within the first half of final 12 months,” chief govt António Simões instructed the Monetary Occasions.
He stated “increasingly” folks had been selecting to purchase a person annuity with a few of their pot, alongside different choices reminiscent of so-called drawdown merchandise, the place they take some earnings from a still-invested fund.
Amanda Blanc, chief govt of Aviva, stated the person annuity was “making a comeback, after going so out of style” as a result of low rates of interest and pension freedoms.
She believes the market is more likely to proceed rising. “While rates of interest will in all probability come down, they in all probability received’t come right down to the place they had been earlier than.”
Charges on annuities, that are backed by insurers with authorities bonds and thus mirror their yields of their pricing, slid within the low-interest charge period, turning into an enormous motivator for the Osborne reforms.
In accordance with Hargreaves Lansdown’s annuity comparability service, a wholesome 65-year-old with a £100,000 pension pot can at the moment get a single-life (which pays out to only one individual) degree annuity of as much as £7,100 a 12 months, which pays out for at least 5 years.
4 years in the past, the determine would have been about £4,700.
In 2013, insurers bought almost £12bn in particular person annuities. David Richardson, chief govt at Simply Group, believes the marketplace for particular person annuities may finally exceed that degree, pointing to the rising measurement of so-called outlined contribution pots.
“I don’t see any purpose why it’s best to see that as a ceiling, the place it was earlier than,” he stated. “The quantity of [DC] cash that’s going in the direction of retirement goes to develop 12 months on 12 months.”
One issue is the brand new so-called client responsibility regulation that requires advisers to reveal they’re contemplating the perfect outcomes for purchasers, which insurers say has inspired the promotion of guaranteed-income merchandise.
As we speak, folks at retirement are sometimes taking a mixture of tax-free money and a few drawdown earnings whereas additionally buying an annuity with a few of their pot, and more and more doing that later of their retirement when they need extra certainty, executives stated.
Yvonne Braun, director of long-term financial savings coverage on the ABI, stated “entry to acceptable help is essential to assist folks make good decisions”.
She referred to as on the Monetary Conduct Authority to make use of its ongoing work on the boundary between retirement steerage and what’s thought of monetary recommendation to “open up extra alternatives” for folks to get help of their retirement choices.
