This edition marks the last quarter of data before the pension rule changes came into effect on 6th April and suggests a sense of ‘wait and see’ prevails among both providers and consumers when it comes to annuity decisions. The average rate for a standard single life annuity is at its lowest for at least two years and demand remains at historic lows compared to a year ago.
Despite the fall in rates this quarter, there has been an increase in average incomes, which has been triggered by those with bigger pension pots annuitising.
The take-up of enhanced annuities is now at its highest rate for over three years, with 35% of annuities enhanced in the last quarter compared to 30% in the same quarter last year.
While there has been an ongoing fall in demand this does not mean the death of annuities as a retirement option, with guaranteed income in retirement a key concern for consumers. In a snap poll carried out by IRESS in conjunction with the IFP, advisers believed that guaranteeing an income for the rest of their lives remained clients’ biggest goal, with 48% stating this as their top priority.
The first of the major pension reforms have now come into effect and we will see in the coming months how these affect the annuities market. While many consumers will look at alternatives to annuities in due course, there will still be a need for financial security. Other investments may offer tempting returns but retirees are often risk averse and will be aware that their savings will need to last up to 30+ years.
It is also possible that, while retirees may not immediately buy an annuity when they stop working they may choose to do so in the future in order to have a more controlled and secure income as they enter different stages of their retirement.
One thing remains certain, with annuity rates under pressure, ever more options, and the greater ability to access pension savings it is imperative that consumers understand the full range of options, and how these apply to their own individual circumstances, before acting. Advisers clearly have a key role to play in helping consumers evaluate their assets as they approach retirement.
Our report looks at how the dust has settled following the introduction of pension freedom and all the choices we now have to try and achieve a sustainable income.
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This report is the third edition of our At Retirement Report, a quarterly index designed to track the preparation of those approaching retirement, changes in the ‘at retirement’ space, and how this is impacting decision-making and retirees’ returns.