Annuity market faces extinction: More and more people are instead taking advantage of pension freedoms

 
Oliver Gill
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Annuity sales have fallen by 16 per cent in the last six months, the Financial Conduct Authority said (Source: Getty)

Britain's annuity market is facing extinction, experts have warned, as official figures released today revealed a huge drop off in sales.

Two and a half years since chancellor George Osborne released the pension shackles, the number of people accessing lump sum continues to rise, according to six-month data published by the Financial Conduct Authority (FCA).

The number of pension pots accessed for the first time rose by nine per cent and new drawdown arrangements increased by four per cent.

Meanwhile, annuity sales have continued on a seemingly terminal trajectory, falling 16 per cent.

"Demand for drawdown is now outstripping annuities by almost three to one; it is clear investors have limited appetite for guaranteed incomes at today’s relatively low interest rates," said Hargreaves Lansdown head of policy Tom McPhail.

If this trend continues much further we may not have an annuity market at all and that won’t be good for investors

Read more: Retirees have seen incomes plummet since the financial crisis

"Worry"

McPhail said the trend for older people to not have at least some guaranteed income was a "worry".

AJ Bell senior analyst Tom Selby said: “We are now getting a clearer picture of how savers are using the pension freedoms. Annuity sales have continued to slump in an environment of persistently low interest rates, while drawdown has soared as more people take advantage of the flexibility on offer."

However, Selby did not agree with McPhail's concerns.

"We need to bear in mind that investors are able to change provider at any time whereas buying an annuity is a one-and-done decision."

He added: “The evidence to date points to people broadly using the freedoms sensibly, although the data does not include other income sources people have in addition to their pension savings. Without this information, it is difficult to truly judge the success or otherwise of the reforms to date.”

Read more: Here's why the FCA could meddle with Osborne's pension freedoms legacy

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