15th July 2015
Nearly a quarter of a million payments worth £1.8billion were made to customers from pension pots in April and May, following the launch of new rules giving retirees freedom over how they spend their funds.
In the same period £1.3 billion was put in to buying nearly 22,000 regular income products, with over 50% of this going into income drawdown products rather than annuities, according to figures published today by the Association of British Insurers to mark the first 100 days since the launch of the new freedoms.
In 2012, at their peak, over 90% of the total value of sales were annuities. Less than 10% of total were income drawdown sales.
The ABI data shows:
Savers have taken out over £1billion in 65,000 cash withdrawals from their pension pots. The average pot taken was £15,500. These cash lump sum payments take advantage of new forms of withdrawal called Uncrystallised Funds Pension Lump Sum (UFPLS).
Savers have taken out £800m worth in payments from income drawdown policies in 170,000 withdrawals.
Savers have put in £630m to buy 11,300 annuities and a further £720m to buy 10,300 income drawdown policies. This compares to nearly £1.2 billion a month in sales of annuities at the peak in 2012, when only £0.1 million per month was put into income drawdown products.
The average annuity was purchased with £55,750 and the average fund put into drawdown was £69,900.
The data also shows that many customers are shopping around for the best deal, with nearly half (45% of sales) choosing a different provider when buying an annuity and over half (52% of sales) switching when buying an income drawdown product.
Dr Yvonne Braun, the ABI’s director for long-term savings policy, says: “This is an important reminder that tens of thousands of people are successfully accessing the pension freedoms as intended and on the whole the industry has risen to the challenge of giving customers what they want.
“The data shows people with smaller pots tend to be cashing them out while those with larger pots tend to be buying a regular income product. It also highlights an increase in the number of people putting money into income drawdown products that can take advantage of the new freedoms.
“We are just three months into the biggest overhaul in pensions for a generation which was introduced in only one year, so some issues remain that need to be worked through, in particular around financial advice. This is why we launched our Action Plan to call for a joint taskforce with industry, Government and regulators to work through the challenges and ensure all customers can access their pension in the way they want.”
Tom McPhail, head of pensions research at Hargreaves Lansdown, says: “After the first 100 days, we can draw some conclusions. Small pots are likely to continue to be cashed in: faced with the choice of income sufficient to buy a cup of coffee every day, or a lump sum of £15,000 up front, investors are understandably deciding to take the money in one go.”
“By contrast, larger pots are going into both annuities and drawdown. Our own experience is that far more annuity purchasers are qualifying for enhanced terms (88%) though the overall number of annuity sales remains well below the peaks of previous years.
“More investors are tapping into their retirement savings ahead of full retirement and many are reporting an intention to work part time ahead of finally stopping work. ”
McPhail adds: “Only around half of investors are shopping around and we know from past experience that when they don’t they are unlikely to get the best deal that they could.
“For those that do however, good retirement income terms are readily available.”
But he says: “Too many pension providers aren’t offering the new flexibilities or making it sufficiently easy for their customers to take their money elsewhere. The government’s consultation on pension transfers can’t come soon enough.
“There is also a lack of consistency between the data published by the Treasury and by the ABI, which itself does not cover the whole pensions industry.
“Since last year we have looked to the government to put in place robust measures to track how the pension freedoms are being used. Similarly, it is surely time to see data published on the take up and impact of the Pension Wise service.”