The figures show a sharp turn around in the volume of annuities and income drawdown products sold during the second quarter over past four years.
Annuity sales represented just 24% of decumulation product sales in 2Q17, after accounting for more than two-thirds of sales in 2Q14.
In contrast, income drawdown has switched from just a third of sales in 2014, to more than three-quarters during 2017.
Tom Selby, senior analyst at AJ Bell, said the data shows the “dramatic and immediate” impact of pension freedom reforms on the decumulation market.
Number of sales by product type, Decumulation products:
| Q2 2014 | Q2 2015 | Q2 2016 | Q2 2017 | ||
| Annuities | Volume | 38,337 | 13,738 | 19,190 | 13,875 |
| % | 67% | 29% | 33% | 24% | |
| Income drawdown | Volume | 18,952 | 33,886 | 39,096 | 42,776 |
| % | 33% | 71% | 67% | 76% |
Self-invested person pension scheme (Sipps) sales are also marginally up, as are non-advised personal pensions, according to the data.
Annuities must avoid extinction
“In 2015 annuity sales fell off a cliff in favour of income drawdown and in the latest data for 2017 the trend is even more pronounced with income drawdown representing three quarters of product sales,” said Selby.
“Until there is a change in underlying economic conditions and a boost to gilt yields to underpin guaranteed income rates, this trend is likely to continue.
“However, for many people an annuity will remain the most appropriate option, at least for part of their retirement income, so it is important this market doesn’t erode into extinction.”
Steven Cameron, pensions director at Aegon, agreed that pensions freedoms had “delivered a huge blow to the annuity market” and highlighted the declining role of advice in long term savings sales.
“Unlike a one-off annuity purchase, drawdown requires ongoing decisions and financial advisers have a key role to play in protecting customers through both initial and ongoing retirement advice,” he said.
“Meanwhile the government’s auto-enrolment initiative has meant far larger numbers of people are saving into a pension, with saver volumes more than twice as high as before the policy’s introduction.”
Next big opportunity for advisers
“However, these figures hide the inadequacy of individual contributions, and boosting levels may be the next big opportunity and challenge for advisers,” continued Cameron.
He also noted a clear link between interest rates and Isa sales, where cash Isas have dominated volumes. Since the Bank of England started cutting interest rates in the summer of 2007, Isa sales have fallen, despite the increased Isa allowance. The proportion of Isas sold with advice has also tumbled, he concluded.
According to the FCA data, almost 470,000 Sipp sales were recorded in the first half of this year, compared to fewer than 800,000 last year.
Nearly 700,000 non-advised sales of personal pensions have been made in the first half of 2017, compared with the 1.2 million last year.
