Figures from the Association of British Insurers (ABI) revealed that, since the need for annuities was removed in March’s Budget, sales of the retirement product have dropped to 46,368 in Q2 from 74,270 in Q1.
The value of annuities sold fell from £2.5bn to £1.8bn.
Additionally, the average pot size of an annuity has grown, as more people with smaller pots take their cash out as an alternative to purchasing an annuity.
However, the proportion of enhanced annuities purchased as a proportion of total sales has remained unchanged, and there has also been an increase in the sale of income drawdown contracts, albeit with a lessening average pot size.
In this year’s Budget, delivered by Chancellor George Osborne, the UK Government said it plans to remove the requirement for retirees to purchase an income stream, whether that be an annuity or through phased drawdown.
Under the plans, which will come into force on 6 April 2015, someone reaching the age of 55 will be able to take out their entire pension pot at once, with 25% tax free and the rest taxed at the retiree's marginal rate.
"Radically overhauled"
Yvonne Braun, head of savings, retirement and social care at ABI, said the announcements have “radically overhauled” the pensions market.
She added that the data accurately portrays the “immediate choices” customers have made since the changes, suggesting many have used the new freedoms to take out their cash lump sum, something “the industry has campaigned for”.
“Although it is too early to determine how customer behaviour will continue to evolve between now and when the Budget reforms come fully into effect in April 2015, there are still a significant number of savers who will want the regular income provided by an annuity,” she added. “We would expect that many will choose to annuitise later as a result of the new measures.”
The news comes after life companies such as Legal & General, Prudential, and Standard Life reported 40% plus drops in annuity sales since the Budget.
A continuing drop in the sale of life company annuities could also be anticipated in the future, as International Adviser revealed in May that many international fund management groups are expected to launch a wave of new retirement style products providing an alternative to annuities over the “next few years”.
