My Pension Expert reveals the changing face of the annuity market as the dust settles following the Budget changes.
Back in March, George Osborne dropped his Budget bombshell which promised to usher in a new and improved world for pensions. His revolution is now well and truly underway and following analysis of business written by My Pension Expert pre and post Budget it would appear that the pension landscape has already shifted significantly.
Prior to the Budget the majority of retirees elected to purchase a lifetime annuity which accounted for 47% of My Pension Expert’s total business written. Post Budget this figure has fallen by 25% as products which offer greater flexibility such as Fixed-Term Annuities and Income Drawdown have seen a surge in popularity.
Fixed-Term Annuities now account for a total of 57% of all business written which is a 19% increase on what it was pre Budget. Income Drawdown has also seen a similar increase in business written of 16%, jumping from a mere 1% before the Budget to 17% currently. On the flip side Invested Annuities which are another example of an inflexible annuity, have fallen by 9%, from 13% to 4%.
The total percentage of people selecting Fixed-Term Annuities, Income Drawdown and Flexible Drawdown is 75%, this means that three in four people are currently opting for flexible retirement options versus the more rigid traditional options. Prior to the Budget this figure was 40%, almost half of what it is now.
Drawdown products are set to become even more popular thanks to the recent changes in death benefits, as they can now be passed to any named beneficiary on death. If the policy holder dies before the age of 75, the remaining pension pot can be transferred completely tax free. If they live beyond the age of 75 then the beneficiaries will pay their marginal rate of tax on the income they take from it. No inheritance tax is paid at all, regardless of the size of the pension pot unless the fund has been crystallised in which case some may be paid.
With greater levels of flexibility and choice on offer, the need to seek advice becomes greater than ever. With the surge in popularity in drawdown products there is a danger that if unadvised, retirees will enter into policies without understanding the inherent risks that are involved and what it takes to manage to them.
Scott Mullen director at My Pension Expert said:
“An advisor can talk an individual through their options and find the right product that best suits their unique needs. Should that be a drawdown product they can ensure that it is managed correctly and reaches its full potential.
“With annuity rates at low levels and the introduction of the new pension freedoms it’s easy to understand why retirees are opting for the more flexible options at retirement so that they can take their time with major decisions and re-evaluate their needs well into their retired life."
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