Release the Writer’s Digest for independent
Roula Khalaf, Writer of the FT, selects her favorite tales on this weekly e-newsletter.
Annuity gross sales soared to their easiest degree in a decade in 2024, as prime charges and financial hesitation drove public in opposition to the goods and their assured source of revenue streams.
Insurers bought £7bn in annuities closing yr, in line with the Affiliation of British Insurers, up 34 in keeping with cent from 2023 and the easiest determine since George Osborne’s “pensions freedoms” Funds in 2014. The collection of guarantees bought rose by means of 24 in keeping with cent closing yr to 89,600, a 10-year prime — however nonetheless just a quarter of the 2013 determine.
“With ongoing global turmoil and economic uncertainty, there’s an increasing desire for people looking for stability in retirement,” mentioned Lorna Shah, managing director of retail escape at insurer Prison & Common.
Gross sales plummeted in 2014 nearest then-chancellor Osborne got rid of long-standing restrictions that driven maximum pensioners to annuities.
The collection of guarantees bought dipped to an rock bottom of just below 50,000 in 2020, ailing from about 350,000 in 2013.
However resurgent rates of interest, at the side of a long term fall within the collection of public on beneficiant outlined get advantages pensions, have lured savers again to annuities over the life two years.
In spite of the stand, annuity purchases proceed to form up just a mini percentage of the tactics wherein public get right of entry to pension wealth. They had been maximum usual amongst public with pension pots usefulness between £50,000 and £250,000.
“People think it’s a choice between an annuity or income drawdown — it’s not an either or, you can incorporate both of them,” mentioned Helen Morrissey, head of escape research at Hargreaves Lansdown.
She mentioned that so-called combined answers may enchantment to anyone who supposed to “step back from work, maybe work part-time”. Retirees may just “annuitise in slices, taking smaller amounts out of their pension and using it to “secure some guaranteed income from an annuity,” she mentioned. Via departure the remains invested, they’d additionally give you the option to develop their pension pots.
Morrissey defined that annuities grew more and more horny for used pensioners. Any person who annuitised a £100,000 pension pot on the generation of 65 would obtain an annual source of revenue of £6,309 on a unmarried existence, degree annuity with a five-year pledge.
A person who took out the similar annuity on the generation of 75 would obtain £9,368 a yr, in line with Hargreaves Lansdown’s “best annuity rates” information for this presen.
“If you remained invested in income drawdown at the age of 75, your portfolio would have to work very hard from an investment point of view to generate those returns,” mentioned Morrissey.
Rob Yuille, the ABI’s head of long-term financial savings coverage, famous that extra public had been “taking advantage of professional advice before purchasing an annuity, and are exploring the market to find the best [option]”.
Thirty six in keeping with cent of patrons took monetary recommendation earlier than purchasing annuities, up from 29 in keeping with cent in 2023, in line with the ABI. Seven in 10 took out an annuity from a unique supplier to the only they held their pension financial savings with.
Some advisers remained wary about encouraging their purchasers to buy annuities. “The problem with an annuity is that once you’ve bought it, you can’t tweak it,” mentioned Daniel Hough, monetary planner at RBC Brewin Dolphin. “The top rates are good initially, but once you build in additional features they become less attractive.”
Not like pension pots, annuities in most cases can’t be handed on as an inheritance. Joint-life annuities permit spouses to obtain an source of revenue nearest one particular person in a wedding dies, however the charges on do business in are some distance less than single-life annuities.
Nonetheless, annuities suppliers say there are underlying structural adjustments drawing public to the goods — past prime rates of interest. The phasing out of outlined get advantages pension schemes — which introduced pensioners a assured source of revenue till they kicked the bucket — intended that the upcoming pace of retirees must supremacy their escape source of revenue extra in moderation, mentioned Pete Cowell, head of annuities at Same old While.
Annuity charges are pushed by means of various elements, together with long-term possibilities for bottom charges. Hargreaves Lansdown’s Morrissey mentioned that week rates of interest had been anticipated to “pull back over the next year or so, I can’t imagine us returning to the mega-low rates [of the 2010s] any time soon”.
