Iress: annuity demand sees 10.5% monthly rise

Analysis of data from over 150,000 advised annuity cases has found that demand for single life annuity products via financial advisers climbed 10.5% in September compared to August. While demand is still subdued, it has climbed by 14% since the market’s trough in June 2014, following the impact of changes announced in the Budget. Nevertheless, annuity sales are still 47.1% down on an annual basis.

Similarly, average retirement incomes have climbed. The average single life annuity secured an income of £3,810 per year in September, up by 4.6% compared to August, and up 16.7% compared to September 2013. This is its highest level in at least a year.

The increase has been driven by the increase in the average annuitant’s pension pots.  The average pension pot for annuitants at retirement is at its highest level since at least April 2012, hitting £72,134 in September, as smaller pots are increasingly unlocked rather than annuitised, boosting the average. As a result, the average pot size rose 4.9% compared to £68,779 in August. The average pot stands 19.7% higher than a year ago (£60,254).

Standard annuity rates, by contrast, have fallen, to their lowest since July 2013. In September, they decreased to 5.28%, marginally down from August (5.29%). Three consecutive months of falls have reversed a trend of slight improvement in the second quarter, when average rates reached 5.44%. The current level is a long way from the 2014 peak of 5.45% in January.

Dave Miller, Executive General Manager, Sourcing at IRESS, commented:

“The Budget changes knocked the wind from the sails of annuity demand, but the slight recovery in the last quarter suggests the market may have bottomed out in the short-tem. April 2015 will provide a pivotal moment for demand when guidance becomes available. At this point, we should also see variety in both annuities and investment backed products. As people incorporate multiple and flexible products in their retirement, we believe guaranteed income will remain an important strut in long-term retirement planning.

“Average incomes for annuitants may have hit their highest in over a year, but this is in spite of annuity rates, rather than because of them. Bigger average pot sizes – as those with smaller pots look to unlock their savings – have underpinned the increase.  With interest rates still at historic lows – and a rise looking more distant than expected - and no concerted improvement in 15 year gilt yields, rates have had no real upwards pressure in recent months.  However, as we see providers bring new offerings to market after April, this may bring increased competition and bolster annuity rates in 2015.

“Over 55s have accumulated property wealth of over £2,000bn in the UK, so it is clear there is scope for the equity release market to expand, especially as house prices continue to rise. A key role of advisers will be to help consumers evaluate their assets – whether property, savings or pension pots – as a whole as they approach retirement.”

Peter Bradshaw, National Accounts Director at Selectapension added:

“Despite a rebound in September’s annuity sales, it is clear that the market hasn’t recovered. In contrast, our internal data shows that Advisers are increasingly reviewing smaller pension pots  for income drawdown. Our analysis found the average pension pot size reviewed on our income drawdown calculators has shrunk by nearly £15,000 in 2014. Alongside this, the number of client pensions analysed for drawdown is at an all-time high, indicating a new set of clients are being considered for income drawdown.

“As more and more advisers choose less-traditional routes for their clients’ pensions, technology will become imperative in doing the heavy-lifting when it comes to research and analysis. This allows Advisers to focus on their skills of building a relationship and advising their clients in this turbulent marketplace, whilst the software specialists such as Selectapension concentrate on ensuring technology is constantly updated and ready for the regulatory changes due in spring 2015.”