Annuities: Sales drop as fewer people shop around for the best rate

New research has shown a huge drop in the number of Annuities being bought since the changes to pensions were announced in the Budget earlier this year.

Amongst an array of sometimes confusing statistics, the data, produced by the Association of British Insurers (ABI), shows:

• Sales of Annuities have fallen by over a third between the first and second quarters of 2014
• In the second quarter of 2013 89,896 Annuities were sold
• In the same period during 2014 this dropped to 46,368

There were also some surprises, including a drop in the number of people shopping around for the right Annuity.

Less shopping around

Despite calls from experts to shop around for the best Annuity rate, and indeed the right product, it appears that the message might not be getting through:

• More people with larger pension pots have decided to stay with their existing provider
• In the second quarter of 2013, 51% of Annuities were ‘external’; meaning they were bought from a different company to the one which provided the original pension
• During the same period of 2014 the number of people shopping around dropped to 45%

The ABI believes that fewer people with larger pots shopping around, is down to more pensioners “taking advantage of Guaranteed Annuity Rates (GARs).” However, many pension experts are sceptical, pointing out that broadly the same number of pensions in 2014 will have benefited from GARs as in previous years.

Enhanced Annuities

Despite the fall in the number of people with larger funds shopping around for their Annuity, the uptake of Enhanced Annuities, which provide a higher income for certain people due to health or lifestyle factors, is higher than last year:

• In the second quarter of 2013, 25% of all Annuities were enhanced
• This has risen to 29% during the same period of 2014
• Furthermore, 59% of all external Annuity purchases were enhanced in the second three months of 2014, up from 47% in 2013

Interestingly, there has also been a marked increase in the number of people with small pension pots buying an Enhanced Annuity.

Average Annuity purchase price

According to the ABI the average purchase price has increased, from £34,500 in the second quarter of 2013, to £38,600 in 2014.

This certainly reflects the trends we are seeing here at Investment Sense and in all likelihood is due to more people taking advantage of the revamped small pots and triviality rules, introduced in the last Budget.

Confusing data

The latest ABI data makes interesting reading.

The fall in the number of Annuities was predicted by many and the increase in the average purchase price makes sense as people take advantage of the small pots and triviality rules.

However, the drop in the number of people with large pension funds shopping round for their Annuity is as surprising as it is worrying and has no immediately logical answer.

On the other hand, the fact that more people with smaller pension funds are buying Enhanced Annuities and therefore getting ah higher income in retirement, has to be welcomed.

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