Annuity gross sales bounce as savers are tempted by offers price 7%-plus

On Feb 16, 2024

For £100k a wholesome 65-year-old can lock in earnings of properly over £7,000 a 12 months
Annuity gross sales in 2023 hit their highest since pension freedom reforms in 2015

Updated: 16:57, 16 February 2024

Annuity gross sales jumped by 46 per cent to £5.2billion final 12 months following a powerful restoration within the retirement earnings they will purchase, new trade figures reveal.

The variety of annuities purchased rose by a 3rd to 72,200 as rate of interest hikes led to suppliers providing a lot better offers.

For £100,000 a wholesome 65-year-old can lock in earnings of properly over £7,000 a 12 months, in keeping with finest purchase information – see beneath.

Annuity sales: Recent run of interest rate hikes to combat inflation means annuity providers can afford to fund much more attractive deals

Annuity gross sales: Recent run of rate of interest hikes to fight inflation means annuity suppliers can afford to fund far more engaging offers

Annuity gross sales in 2023 hit the very best degree since pension freedom reforms in 2015 induced most retirees to start out dwelling on invested funds in outdated age as a substitute.

Industry physique the Association of British Insurers says gross sales had been £1.5 billion within the final quarter of the 12 months, after a powerful third quarter when gross sales had been £1.4 billion.

> Should you purchase an annuity? Find out what to think about beneath

Annuities present a assured earnings till you die.

But they had been shunned for years because of poor charges and restrictive circumstances, and after gaining a nasty fame on the again of annuity mis-selling scandals.

The pension freedom reforms in 2015 prompted most savers to maintain their funds invested and stay off withdrawals as a substitute, regardless of the monetary market danger concerned.

However, the latest run of rate of interest hikes to fight inflation means annuity suppliers can afford to fund far more engaging offers, prompting a resurgence in gross sales.

Industry figures present that for £100,000, a wholesome 65-year-old can now purchase a retirement earnings of round £7,120 a 12 months, with no inflation safety and a five-year assure interval – defending your money instantly after buy.

For the identical sum, the identical particular person with a partner three years youthful might purchase a joint life annuity with inflation safety however no assure that gives £4,640 a 12 months, in keeping with the most recent information from Hargreaves Lansdown (see beneath).

Source: Best buy industry figures from Hargreaves Lansdown, 15 February

Source: Best purchase trade figures from Hargreaves Lansdown, 15 February

The ABI says: ‘With six suppliers now providing annuities to new prospects, 2023 additionally noticed 64 per cent of annuity patrons store round – taking an annuity from a special supplier to the one they held their pension financial savings with.

‘However, solely 29 per cent of consumers who purchased an annuity did so with the assistance {of professional} recommendation.’

Emma Watkins, managing director for retirement at Scottish Widows, says: ‘As outlined contribution pensions change into the first supply of personal retirement financial savings, latest risky market circumstances mixed with a better consciousness of the upper annuity charges at present on provide have made annuities much more engaging, significantly in gentle of the price of dwelling squeeze and the pattern for individuals to stay longer.

‘Across 2023, this was pushed by sustained will increase in rates of interest, which led to raised offers on the annuity market and, as rates of interest look to stay larger for longer, the attractiveness of annuities will stay.’

ABI figures: Some 353,000 annuities worth £11.9billion were sold in 2013, before pension freedom reforms opened the possibility of keeping your pot invested instead

ABI figures: Some 353,000 annuities price £11.9billion had been bought in 2013, earlier than pension freedom reforms opened the potential of protecting your pot invested as a substitute

What is pension freedom?

Reforms in April 2015 gave over-55s better management over their retirement pots.

Key adjustments included eradicating the necessity to purchase an annuity to offer earnings till you die, giving entry to invest-and-drawdown schemes beforehand restricted to wealthier savers, and the axing of a 55 per cent ‘loss of life tax’ on pension pots left invested.

The adjustments apply to individuals with ‘outlined contribution’ or ‘cash buy’ pension schemes, which take contributions from each employer and worker and make investments them to offer a pot of cash at retirement.

They do not apply to these with extra beneficiant gold-plated closing wage or ‘outlined profit’ pensions which give a assured earnings after retirement.

If you will have a closing wage pension and wish to benefit from pension freedom – and the choice of bequeathing your pot to youngsters and grandchildren – you may transfer it to a drawdown plan.

However, it’s obligatory to get paid-for skilled monetary recommendation first if the switch worth is £30,000 or extra.

Pete Cowell, head of annuities at Standard Life, says: ‘Annuities have benefited from rising rates of interest and it is clear that prospects and advisers are responding to this, and seeing the advantages of getting a assured earnings as a part of the broader mixture of retirement earnings options.

‘It’s essential to do not forget that planning retirement earnings does not should comply with a “one and done” strategy. While an annuity can’t be modified as soon as it is arrange, there are numerous annuity choices accessible and alternative ways annuities can be utilized.

‘Annuities can be bought in phases all through retirement or later in life, to assist fight the results of inflation on hard-earned financial savings.

‘People ought to keep in mind the significance of buying round when on the lookout for the very best price.

‘While individuals can at all times seek the advice of monetary adviser to assist them begin to make choices round which annuity varieties are most fitted for his or her wants, there may be additionally free neutral steerage accessible from Pension Wise, a service from MoneyHelper.’

> Should you purchase an annuity? Find out what to think about beneath, and discover easy methods to make investments your pension and easy methods to mix pension drawdown with annuities.

What do you have to keep in mind when shopping for an annuity

You may be capable to get an ‘enhanced’ price if you happen to wait to purchase an annuity till you’re older and your well being has worsened.

You can assume once more about your invest-and-drawdown technique, and purchase an annuity in tandem or as a alternative supply of earnings later, however you may’t get out of an annuity as soon as it’s bought.

If you’re wholesome, the very best charges are on single life, no inflation-link ‘degree’ annuities, however the present value of dwelling pressures spotlight how essential it’s to get some safety in opposition to rising costs.

If you purchase a single, not a joint, life annuity there shall be nothing to your partner if you happen to die first, so take into account what they should stay on and talk about it with them earlier than making a choice. Many widows and widowers uncover their associate’s annuity selection has left them with no earnings after their bereavement, forcing them to stay on meagre state advantages.

Consider shopping for an annuity with a ‘assure interval’, which protects in opposition to the lack of all or most of your buy cash if you happen to die shortly afterwards.

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