UK annuities are on track for their best sales in a decade

Unlock Editor’s Digest for free

FT editor Roula Khalaf selects her favorite stories in this weekly newsletter.

Sales of UK individual annuities are on track for their best year in a decade as higher interest rates and new financial rules push people back to pension products with a guaranteed income.

Insurance groups sold £3.6 billion of individual annuities in the first half of 2024, according to the Association of British Insurers, an increase of more than 50% on the same period last year.

That puts the market on course for its best display since 2013 – a year before Chancellor George Osborne’s “pension freedoms”, the Budget shook up the UK pensioner landscape by cutting taxes on those cashing in their pension pots.

The increase in sales was reflected in this month’s interim results for some of the UK’s biggest insurers. The FTSE 100 Legal & General group received a further £1.2bn in premiums from individual annuities after what was a record year in 2023.

“Last year was already a great year and what’s amazing is that this year we’ve doubled what we did in the first half of last year,” chief executive António Simões told the Financial Times.

He said “more and more” people are choosing to buy an individual annuity with part of their pot, alongside other options such as so-called drawdown products, where they take part of the income from a fund still invested.

Amanda Blanc, chief executive of Aviva, said the individual annuity was “back after being so out of date” because of low interest rates and pension freedoms.

She believes the market will continue to grow. “While interest rates will probably come down, they probably won’t go down to where they were before.”

Rates on annuities, which are backed by insurers with government bonds and thus reflect their yields in their prices, have fallen in the low interest rate era, becoming a big motivator for Osborne’s reforms.

According to annuity comparison service Hargreaves Lansdown, a healthy 65-year-old man with a pension pot of £100,000 can currently receive a single life annuity (paying to just one person) of up to £7,100 pounds per annum, payable. for at least five years.

Four years ago, the figure would have been around £4,700.

In 2013, insurers sold almost £12 billion in individual annuities. David Richardson, chief executive of Just Group, believes the individual annuity market could eventually surpass this level, pointing to the growing size of so-called defined contribution pots.

“I don’t see any reason why you should see this as a cap where it used to be,” he said. “The amount of money (DC) going into retirement will increase year by year.”

One factor is the new so-called consumer charge regulation, which requires advisers to demonstrate they consider the best outcomes for clients, which insurers say has encouraged the promotion of guaranteed income products.

Today, retirees often take a combination of tax-free cash and some income from withdrawals while buying an annuity with part of their pot, and increasingly later in retirement when they want more a lot of security, the executives said.

Yvonne Braun, director of long-term savings policy at the ABI, said “access to appropriate support is crucial to helping people make good choices”.

She called on the Financial Conduct Authority to use its ongoing work on the boundary between retirement guidance and what is considered financial advice to “open up more opportunities” for people to get support in their retirement decisions.