UK annuity sales continue to fall two years after the new rules were established that allow people to withdraw funds from their pension without having to buy an annuity, or put the money into drawdown, reports the Financial Conduct Authority (FCA).
According to the FCA, annuity sales were 21% lower than the previous six months. Between October 2016 and March 2017, 33,561 annuities were purchased, compared to 42,371 purchased between April 2016 and September 2016. The vast majority of this drop was among customers aged 55 to 64 (down 4,411) and 65-74 (4,208 fewer).
In 2015, the UK government instituted changes to rules on how people can access their defined contributions pension savings. Among those changes was the introduction of uncrystallized funds pension lump sums (UFPLS). This allowed people aged 55 and older to take money directly from their pension without having to buy an annuity, or put the money into drawdown, 25% of which is tax free.
The FCA’s data showed that the decline in sales was more significant among those with smaller pensions. It said there have been falls in the number of annuities purchased across almost all pot sizes, except for those £250,000 and above, and that there was a particularly large drop among pensions between £10,000 and £29,000.
Meanwhile, the number of plans entering partial drawdown products rose slightly. Between April 2016 and September 2016, 83,450 partially withdrawn products were entered into, which is a 4% increase from October 2015 to March 2016, when partial drawdown was entered into on 80,182 plans.
Partial UFPLS payments taken and not fully withdrawn continued their steady increase, said the FCA. The number of full cash withdrawals made by new customers between October 2016 and March 2017 fell by 17,959, or 11%, from the previous six-month period.
“This is almost entirely concentrated among those with low-value pot sizes (less than £29,000),” said the FCA. “However, compared to the same period last year, the number of full cash withdrawals increased by 22,898 (18%).”
The FCA also said that after an initial spike in pension access activity in the six months after the introduction of the pension freedoms in April 2015, “the market seems to have settled down.”
Between October 2015 and September 2016, drawdown products outsold annuities at a rate of two to one, while the number of new drawdown policies entered into remained stable between October 2016 and March 2017. However, there was a sharp decline in the number of annuities purchased during this time, reaching the lowest level since the pension freedoms were introduced.
“This suggests more people are entering into new drawdown plans than are purchasing an annuity,” said the FCA.