ABI: pension freedoms payments reach £2.5bn

New ABI figures for April, May and June also show £2.3bn has been used to buy nearly 37,500 regular income products, either pension annuities or income drawdown products.

The figures show that for pay outs, £1.3bn has been paid out in cash lump sums, with an average payment size of just under £15,000, and £1.1bn has been paid out via 264,000 income drawdown payments - an average payment of nearly £4,200.

 Meanwhile for funds being invested into drawdown products and annuities:

- £1.3bn has been invested in 19,600 income drawdown products, an average fund size of almost £68,000.
- £990m has been invested in around 17,800 annuities, making the average fund invested just over £55,600.
- 45% of customers buying an annuity changed provider. For income drawdown purchases, this figure is 55%.

ABI’s Director for Long Terms Savings Policy, Dr Yvonne Braun, said:

“These figures are a testament to how well pension providers have adapted to the radical new approach to pensions which came into force on April 6th. They also show the popularity of the reforms. Many thousands of people have accessed their savings to get extra cash as they approach retirement. Meanwhile annuities, which guarantee an income for life, and income drawdown are proving attractive to those with larger pension pots.

“Working out how we pay for our growing life expectancy is a vital issue for the UK. The pension freedoms should be able to play an important role in helping retirees shape their income to suit their financial needs over the rest of their lives. However, people will only be able to benefit fully if they have been able to build up enough in savings during their working lives. Creating a stronger savings culture is therefore crucial.”

Duncan Jarrett, Managing Director, Retail at Aegon UK, commented:

“It’s great to see the pension freedoms continuing their momentum with retirees exercising their new options and accessing billions of pounds worth of savings. Today’s data highlights the increasing popularity of accessing cash lump sums which tend to be for smaller pots and of drawdown, which can be used to manage an income in retirement.
 
“One of the major trends visible in today’s figures is the fact that the value of new assets in income drawdown has surpassed those in annuities. This move highlights people’s requirement for income flexibility but last week’s market crash is also a timely reminder that drawdown investors need to factor in potential market movements to their plans as their savings remain invested. The industry needs to get better a promoting the value of guaranteed drawdown which provides the flexibility of drawdown with a minimum income guaranteed as we expect assets in drawdown will continue to grow.”