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UK personal annuity sales are on track for their best year in a decade, as higher interest rates and new financial rules push people back into guaranteed income pension products.
According to the Association of British Insurers, insurers sold £3.6bn in personal pensions in the first half of 2024, up more than 50% on the same period last year.
That puts the market on track for its best performance since 2013 — a year before chancellor George Osborne made the announcement “pension freedom”The budget has transformed the UK’s pension landscape by cutting tax on people drawing down their pensions.
The surge in sales was reflected in interim results this month from some of the UK’s biggest insurers, with FTSE 100 group Legal & General earning an extra £1.2bn in premiums from individual annuities following a record year in 2023.
“Last year was a great year, and what’s even better is that this year we’ve doubled what we achieved in the first half of last year,” chief executive António Simões told the Financial Times.
He said “more and more” people were choosing to buy individual annuities with part of their money, alongside other options such as so-called drawdown products, where they take a portion of the income from a fund that is still invested.
Amanda Blanc, chief executive of Aviva, said personal annuities were “making a comeback from obsolescence” due to low interest rates and pension freedom.
She believes the market is likely to continue to grow. “While interest rates may come down, they probably won’t go back to where they were before.”
Annuity rates, which are backed by insurance companies using government bonds and therefore reflect yields in their prices, have fallen in the low-interest-rate era, becoming a major driver of Osborne’s reforms.
According to Hargreaves Lansdown’s pension comparison service, a healthy 65-year-old with a pension of £100,000 can currently receive a lump sum pension (paid to one person only) of up to £7,100 a year, paid over a minimum of five years.
Four years ago, this figure was around £4,700.
In 2013, insurers sold nearly £12bn of personal pensions. David Richardson, chief executive of Just Group, believes the personal pension market could eventually surpass that, pointing to the growing size of so-called defined contribution funds.
“I don’t see any reason why you should consider it a ceiling, where it was before,” he said. “The number [DC] The amount of money set aside for retirement will increase every year.”
One factor is new consumer duty rules requiring advisers to demonstrate they are considering the best outcomes for clients, which insurers say has encouraged the promotion of products with guaranteed incomes.
Retirees today typically take tax-free cash and some income withdrawals and buy annuities with part of their savings, executives say, and they often do so later in retirement when they want more certainty.
“Access to the right support is vital to help people make the right choices,” said Yvonne Braun, director of long-term savings policy at ABI.
She called on the Financial Conduct Authority to use its ongoing work on the boundaries between retirement guidance and what counts as financial advice to “open up more opportunities” for people to get support in their retirement decisions.
