This edition marks the first quarter since the pension rule changes came into effect in April 2015. It is evident that the retirement market is undergoing a period of upheaval and is still settling into the changes.
Many consumers have been looking at the alternatives to annuities now open to them, causing a plunge in annuity demand immediately after the reforms were implemented. However, there is still a need for financial security, and this prompted demand to begin to recover on a month-by-month basis across the rest of the quarter, highlighting that annuities still remain an important and appropriate option for retirees.
With the increasing number of investment products now hitting the market drawdown is continuing to grow in popularity. The number of drawdown income contracts is up 72% from this time last year and this looks set to continue to play a key role in the market.
Average rates reached a six month high this quarter, suggesting that we are starting to see rates recover from the recent lows, and in turn helping to stimulate demand over the long-term. The rise in rates has also driven an increase in average incomes, triggered by those with bigger pension pots annuitising.
Take-up of enhanced annuities took a turn for the worst, with just 17% of annuities enhanced in June, down from one-in-three in March. However, there remain benefits in taking up an enhanced annuity and as options broaden consumers must be aware of this.
Shopping around has become increasingly valuable as the market becomes more competitive and the gap between the best and worst rates grows. However, consumers are yet to fully grasp and engage with this. An increasing number are buying from the pension provider they saved with and failing to compare products across the whole market.
With the options available now wider, a greater ability to access pension savings, and with annuity rates still under pressure, it is imperative that consumers understand the full range of options, and how these apply to their own individual circumstances, before acting. The new complexity of the market means advice for consumers must take centre stage. Advisers clearly have a key role to play in helping consumers evaluate their assets, understand the options available and choose the option most suitable for them.
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