Market forces combine to create an attractive environment for annuity sales.
Annuity sales have reached a 10-year high and rose 24% from 2023 to 2024.
Research from the Association of British Insurers shows that 89,600 pension annuity contracts were sold last year, representing a 24% increase on 2023.
The total value of those sales, £7bn, also jumped from the year before – by 34%, or £2.38bn.
Advice businesses have for a while expected sales to jump, with data from the FCA last year showing a sharp increase from 2022 to 2023.
It comes amid a consistently high interest rate environment, which has traditionally seen providers offer better rates to customers who wish to lock in a guaranteed income for retirement.
Steve Webb, partner at Lane Clark & Peacock and a former pensions minister, said a combination of factors had led to an increase in sales.
‘The biggest factor is much more attractive rates but as well, over time, annuities have become a much more flexible product,’ he said.
Webb said many annuities now have guarantee periods, meaning they continue to pay an income to relatives when the person who bought the product dies.
‘One of the big barriers was that, if I die tomorrow, I will lose all of my money locked up in an annuity. That is no longer the case,’ he said.
‘People are looking for much more reassurance that an annuity will pay out for five or 10 years. Annuities are now much more flexible and attractive for buyers whatever the circumstances. Some people want inflation protection, some don’t; some want survivors benefit, some don’t.’
Flexibility in the market now means customers do not need to lock in for an annuity at 100% of their pension value and can choose to be covered across several bases to be protected in volatile and unpredictable markets.
‘There is a big market and people would have been scared by market volatility,’ Webb said.
‘If you have your money in a defined contribution pot and it goes up and down quite dramatically, there must come a point where you think: “I’ve had enough of this, I just want something secure.”’
Webb pointed to work carried out by Standard Life, which said phased annuity products could lead to good outcomes for customers. Standard Life, part of Phoenix Group, suggested an environment in which customers could use a chunk of their drawdown pot to purchase an annuity product.
As rates improve over time, a customer could benefit from investment growth earlier on before being assured of an income later on in their retirement.
Julian Bovill (CityWire)
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