£1.8bn was withdrawn from pension pots in April and May by nearly a quarter of a million savers, according to new figures published today by the Association of British Insurers.
In the same period £1.3bn was put in to buying nearly 22,000 regular income products, with over 50 per cent of this going into income drawdown products rather than annuities. In 2012, when annuity sales were at their peak, over 90 per cent of the total value of sales were annuities. Less than 10 per cent of total sales were income drawdown sales.
New 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 were made through Uncrystallised Funds Pension Lump Sum (UFPLS).
Savers have taken out £800m worth in payments from income drawdown policies in 170,000 withdrawals.
Retirees spent £630m buying 11,300 annuities while a further £720m was moved into 10,300 income drawdown policies over the two month period. This compares to nearly £1.2bn 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 45 per cent of annuity customers chose a different provider when buying an annuity and over half, 52 per cent switching when buying an income drawdown product.
Dr Yvonne Braun director for long term savings policy says: “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.”
Hargreaves Lansdown head of pensions research Tom McPhail 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 per cent – 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. All this data shows that the retirement income market has changed fundamentally. The key message for investors is to engage with their retirement savings in good time and to make informed choices about how best to draw on them.
“There are still issues with the shopping around process. 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. 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.”
Partnership head of product development Mark Stopard says: “These figures clearly show that while the wave has crested and those with smaller pots have taken the cash, others are still looking to convert their retirement savings into an income.
“Following the dire predictions of a year ago, it is good to see that retirees have chosen to use £630 million worth of pension savings to purchase a guaranteed income in the form of an annuity and a further £720m to buy drawdown policies. When asked, 64 per cent of people say they want a guaranteed income in retirement so we believe that annuities have an important role to play in this brave new world.
“One small cause for concern is that fewer people than hoped appear to be shopping around despite the introduction of the Pension Wise guidance service – this is definitely something we hope to see more of in the future. As the market settles into a more normal pattern and we begin to see more new products launched, it will be interesting to see how it develops going forward.”