However, sales of self-invested personal pensions (Sipps) were up by 7.9%, equating to some £302.8m ($369m, €335m), and contributing to a rise of 14.3% for the year as a whole, according to figures from financial intermediary Equifax Touchstone.
The data, based on research on 90% of UK’s life and pensions industry, found that pensions product sales rocketed to a record high in the second quarter of 2016, aided by a rise in flexible drawdown investments – up 15%, or £145m.
OBR report
The figures come as analysis by the Office for Budget Responsibility (OBR), published on Tuesday, found that pension freedoms introduced last year had made pensions less attractive compared with other forms of savings, especially for those on high incomes.
In addition to giving people unrestricted access to their private pensions, the former chancellor George Osborne also oversaw restrictions to the annual pensions allowance and lifetime allowance which lowered annual tax free pensions contributions to £40,000 and lifetime contributions to £1m.
This was coupled introducing savings products such as Help-to-Buy Isa and Lifetime Isa, promoted with government top-ups as well as raising the Isa limits to £20,000.
Osborne also proposed creating a secondary market for annuities which will allows pensioners to sell their current annuities to the highest bidder.
The OBR estimates that benefits from the reforms would peak at £2.3bn in 2018-19 before turning negative from 2021-22, rising in cash terms to reach £5bn by 2034-35.
‘Unambiguous’ policies
Ahead of the new chancellor Philip Hammond’s autumn statement expected next month, George Bull, a senior tax partner at auditing firm RSM, has called on the UK government to set out a clear strategy on how it will get pension savings back on track.
He criticised Osborne’s measures for reducing the attractiveness of saving into a pension while increasing the risk that the government will have to provide a safety net for more people “whose post-retirement income is inadequate”.
He added that unlike his predecessor, the chancellor should avoid “piecemeal changes and knee-jerk reactions”, in favour of introducing one “unambiguous” set of measures to change the “mood music of blame and control”.
“To put this in context, private pension wealth accounts for 40.5% of household wealth in the UK. This is bigger even than property (net) at 35%.
“So it is crucial that changes to the tax system for private pensions and savings are based on sound policy as they affect millions of people for most of their lives,” said Bull.
