Annuity sales hit £5.2 billion in 2023, up 46 per cent from the previous year and the biggest since 2014 when pension freedoms were declared.
An increase in the number of annuity contracts sold occurred during the record-breaking year, which was fuelled by a robust fourth quarter with sales of £1.5 billion. This represents a 34 per cent increase from 2022 to 72,200.
Level-only annuities remained the most popular type, accounting for 82 per cent of total sales, while rising annuities saw just a slight increase to 18 per cent.
Only 29 per cent of annuity buyers sought expert advice despite the rise, suggesting a lack of experience with making financial decisions.
Research suggests that customised guidance could result in improved financial outcomes, and ongoing efforts are undertaken to reduce the advice gap.
Association of British Insurers head of long-term savings policy Rob Yuille says:“Securing a guaranteed income for life remains an important part of the mix of options for people to consider at and during retirement, and it’s great to see more people taking advantage of the protection they have to offer. It is also encouraging to see more people exploring the market to secure a higher income.
“However, we’d like to see more people taking advantage of professional advice and new forms of targeted support for consumers to ensure they can enjoy the best possible retirement.”
Providing vital protection and peace of mind to Defined Benefit pension scheme members and their employers, the bulk annuity market also continued to thrive with sales reaching £22 billion in the final quarter of 2023, taking the yearly total to £49.3 billion.
Standard Life head of annuities Pete Cowell says: “These latest figures clearly demonstrate the resurgence of annuities over the last year, with the market increasing by 46 per cent compared to 2022, reaching £5.2 billion in 2023 for 72,200 customers. Annuities have benefited from rising interest rates and it’s clear that customers and advisers are responding to this, and seeing the benefits of having a guaranteed income as part of the wider mix of retirement income solutions. What’s important is a customer’s need for certainty in the current climate, and our research supports this, with 9 in 10 saying income certainty in retirement is important to them. This is exactly what an annuity can provide.
“Increasingly the question is actually how much to annuitise and when, rather than whether to annuitise or not, and it’s important to remember that planning retirement income doesn’t have to follow a ‘one and done’ approach. While an annuity cannot be changed once it’s set up, there are various annuity options available and different ways annuities can be used. Annuities can also be purchased in stages throughout retirement or later in life, to help combat the effects of inflation on hard-earned savings.
“Average annuity rates are currently over 6.6 per cent for a healthy 65-year-old and people should remember the importance of shopping around when looking for the best rate. While people can always consult financial adviser to help them start to make decisions around which annuity types are most suitable for their needs, there is also free impartial guidance available from Pension Wise, a service from MoneyHelper.”
Just Group group communications director at retirement specialist Stephen Lowe says: “Almost 10 years on from the announcement of pension ‘freedom and choice’, advisers and their clients have provided a big thumbs up for annuities which are delivering strong value for money to savers wanting the security of a guaranteed income for life. In the final quarter of the year, the overall value of annuities purchased rose to £1.54 billion, a 70 per cent rise on the same quarter of 2022. But what really stands out is the trend towards retirees shopping around for the best deal.
“In the final quarter of 2023, £75 of every £100 of pension savings used to purchase a guaranteed income for life, was invested by retirees who shopped around and chose to purchase their annuity from a different company to the one they used to build up their pension pot. This is a transformation in consumer behaviour, driven in part by a positive intervention by the Financial Conduct Authority to improve competition which has delivered better outcomes for customers. Well-designed regulation can make a difference.
“Advisers led the revolution many years ago by using technology to shop around the market to ensure their clients secured the best guaranteed income for life. Advisers recognised asking questions about their clients medical conditions and lifestyle was the real breakthrough to secure the very best deals. The rest of the market is beginning to catch-up.”