Annuities are still being sold in significant numbers, despite new pension freedoms.
New data from the Association of British Insurers (ABI) reveals that annuity sales outstripped sales of income drawdown products in Q4 2015 – the first time this has happened since the pension freedoms were introduced.
Some 21,200 annuities were purchased during the final quarter of 2015, compared to 19,700 drawdown products, according to the data.
The figures suggest that predictions about pension freedoms sounding the death knell for annuities have been premature, although it should be noted that the ABI data does not cover all pension companies, including some of the larger income drawdown providers.
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Annuity and income drawdown sales almost on par
Income drawdown allows you to keep your retirement savings invested with your pension provider and withdraw a regular income.
The pension freedoms, introduced in April 2015, removed many of the barriers surrounding income drawdown, making it an option for a wider range of people.
As such, there was a surge in demand for drawdown from people taking advantage of these freedoms in the months immediately after their introduction, while annuity sales dropped.
However, annuity sales have since increased, suggesting there is still demand for products offering a guaranteed income in retirement.
The ABI says that 61,700 annuities and 63,600 income drawdown products have been sold since the pension freedoms were introduced. The average amount used to buy an annuity during this period stands at nearly £53,000, while the average drawdown fund contained just over £66,000.
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Lump sum withdrawals decreasing
The pension freedoms also relaxed rules about withdrawing lump sums. All over-55s are able to take up to 25% of their pensions as a tax-free lump sum, as before, but additional withdrawals are now taxed at your normal rate of income tax rather than the punitive 55% rate that was applied before the reforms.
More than £3bn has been withdrawn since the pension freedoms were introduced, according to the data.
However, only £660m was withdrawn in this way in Q4 2015, compared to £1.3bn and £1.2bn in the second and third quarters respectively. The ABI suggests that the pent up demand that followed the reforms has now started to settle down.
The average amount of cash withdrawn from a pension as lump sum since April 2015 is around £14,800.
Find out more: Should I take a lump sum from my pension? – the pros and cons