The annuity market is set to shrink by at least 25 per cent by the end of next year, a chief executive of a financial services consultancy has warned.
Chris Read, chief executive of Dunstan Thomas, said Budget reforms and other development, such as the introduction of auto-enrolment, “open up an oppor-tunity to re-engage current and future generations of pensioners in building well-resourced saving pots for retirement”.
His comments followed research by Dunstan Thomas among providers, in which 51.6 per cent of respondents thought the market would be between 25 and 49 per cent smaller by the end of 2015, and a further 26 per cent thought the market would shrink by 50 to 74 per cent.
When asked what key changes to the annuity market they would predict, 55 per cent of providers surveyed said they expected an “explosion of innovation” in hybrid retirement products, blending techniques such as drawdown and annuity purchase.
Some 35.5 per cent said people at retirement age would put off buying an annuity until much later in retirement, and only 3.2 per cent expected the reforms to boost enhanced annuities sales.
Providers were also critical of George Osborne’s moves to introduce guaranteed guidance, with 71 per cent saying the chancellor “should never have offered this measure without proper consultation with the market”.
Earlier this month, the Association of British Insurers unveiled data showing that annuity sales had dropped by more than a third between the Q1 and Q2 of the year, with an increase in the sales of income drawdown contracts.
In its five-page factsheet, ABI Statistics Q2 2014: The UK Retirement Income Market Post-Budget, the industry body noted: “The pension flexibility changes announced in the Budget in March 2014 meant fewer people bought annuities, although there was already a decreasing trend in sales.”
Forecast changes in annuities
| Predicted change for the annuity market in future | Percentage of providers questioned that believe this will happen |
| An explosion of innovation in blended annuity/drawdown and other hybrid retirement products | 55% |
| Retirement-age individuals putting off buying an annuity until much later on. | 35.5% |
| Increased sales of enhanced annuities | 3.2% |
| Annuities being fully underwritten | 0% |
Source: Dunstan Thomas
Adviser view
Steven Robinson, managing director of Bristol-based Clarke Robinson and Co, said: “From my own perspective, there has been a 90 per cent drop in annuity sales.”
