The effect of Budget reforms on annuities

Scott Woods.
Scott Woods.
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Money Matters by Scott Woods

Online financial news service Money Marketing has revealed that pensions reforms announced in this year’s Budget have had a crippling impact on sales of annuities.

This view is supported by official figures from the Association of British Insurers (ABI) which showed that the amount of annuities arranged dropped by 38 per cent between the first and second quarters of 2014.

However, annuity sales are 42 per cent down compared to the same quarter in 2013, suggesting the insurance products were falling out of favour before the Chancellor made his announcement in March.

Around 90,000 annuities worth about £3 billion were set up between April and June 2013, compared to just over 46,000 annuities totalling £1.8 billion in the same period this year.

Tom Selby, head of news at Money Marketing, said: “The Treasury has afforded savers the luxury of being able to drain their entire pension pot as quickly as they like.

“However, political expediency means the guidance guarantee designed to ensure savers don’t make bad decisions come April next year will be flimsy at best.”

The ABI’s data also showed that the average amount of money used to buy an annuity rose during the two quarters from £34,500 last year to £38,600 in 2014.

According to the ABI, this suggests people with smaller pots are waiting to take advantage of the freedoms announced in the Budget.

Despite highlighting the problems of savers failing to shop around for the best-priced annuties, of those who did buy annuities in Quarter Two (April-June) 2014, 55 per cent bought them off their existing provider, compared to 48 per cent the previous quarter and 49 per cent year-on-year.

Despite many people qualifying for them, enhanced annuities made up only 29 per cent of all annuity sales.

This is up slightly on the 25 per cent from the same quarter last year but still means thousands of retiring people could be missing out on extra income.