The Association of British Insurers (ABI) have released figures to mark the first 100 days of the government's new pension freedoms. Up until the introduction of these measures by the government, people retiring with personal or workplace defined contribution pensions were forced to buy an annuity to provide them with a regular income in retirement.
Since April however, people have been given almost complete freedom as what they can do with their pension pot. That means as well as buy an annuity, they have a range of options of what to do with their money and where to invest or spend it.
Because this has been a seismic change to the way that people can now access their pension pot, the figures released by the Association of British Insurers provide insightful reading.
In April and May, nearly 250,000 payments were made to customers from their pension pots worth around £1.8bn. At the same time, £1.3bn was spent on buying over 20,000 regular income products, though only 50% of these were annuities, the remainder being other regular income products such as income drawdowns. This compares dramatically to previous years. In 2012, annuities accounted for 90% of total sales.
Two of the other statistics from the ABI's report make particularly interesting reading:
- Average pension pot withdrawn - £15,500
- Average annuity purchase amount - £55,570
These figures show a clear trend, and one that most industry professionals predicted, namely that small pension pots are much more likely to be cashed in. Faced with the choice between a monthly payment that may only provide an actual income of a few pounds per day or week, it's to be expected that most people in this position will withdraw the entire pot. Those with larger pots are tending to go more for annuities and drawdown, where their pension pot can work hard for them providing a regular retirement income.
What is somewhat worrying is that however is that the ABI figures report only 45% of sales of annuities and only 52% of sales of income drawdown products have been bought from a different provider from whom their pension pot rests with. This suggests that only about half of people are shopping around for the best annuity or income drawdown product. Historically, this has led to many people not getting the best deal that they could have. This could suggest a lack of readily available impartial advice but the fact that some providers have been slow to be fully flexible with pension freedoms also has to be factored in.
It will be interesting to see if these trends continue when the ABI release their next set of statistics.