Adviser requests for annuity quotes is continuing to rise and will do so over the coming months as savers seek security.
This is the view of Standard Life’s Pete Cowell, head of annuities, who acknowledged that demand for annuities has been strong over 2023 and 2024, largely because the rates have been high relative to historical levels.
“We have seen a big shift in the past few years with people covering their essential income in retirement through an annuity product”, he told FT Adviser.
Indeed, data from the Financial Conduct Authority earlier this year showed sales of annuities were up 38.7 per cent year on year, with approximately 82,000 individuals taking one out.
Cowell said this had largely been driven attractive rates; a healthy 65-year-old with £100,000 could get around 7.2 per cent, for example.
He said part of the reason for the success of Standard Life’s launch into the annuity market in 2023 was because of the ‘active competition’ and demand for the products.
The Standard Life Pension Annuity, which came to market in September 2023, meant Standard Life become the first new provider to enter the annuity market since the pension freedoms legislation came into effect in 2015.
Changing dynamics
But according to Claire Altman, managing director of individual retirement for Standard Life, the dynamics which have shaped annuity interest til now are starting to change.
She said the increase was being driven by advisers who were previously “lukewarm” on annuities, and it was not just because of the prospect of long-term interest rates staying at higher-than-expected levels.
Altman said “There is a big structural shift happening in UK pensions.
People are concerned about volatility and we have seen a flight to safety
“Fewer people have defined benefit pensions – more have defined contribution. As the market grows, this will need more options for people in retirement.
“Add to this the recent change in the Budget regarding the inheritance tax rules, this may naturally mean people might want to spend more of their pension in retirement, and an annuity is one way of allowing them to do this.”
She added the general political upheaval around the globe, which is likely to continue into 2025, is also driving more people towards the greater certainty that comes with annuitisation.
Altman added: “People are concerned about volatility and we have seen a flight to safety.”
She pointed to Standard Life’s launch of smoothed funds earlier this year to help people maintain a “reasonably good allocation to equities” and smooth out the volatility.
That said, the ‘retirement risk zone’ of people aged between 45 and 75 is becoming more characterised by people less concerned about missing out on big equity growth runs and more concerned about security and certainty.
Fixed-term annuities
Cowell said there was also a “big demand” recently for people taking out fixed-term annuities, which he believed would continue into 2025.
He said: “We have seen an increase in people who want to bridge an income gap, ie between retirement and before the state pension kicks in, or where customers are gradually going into part-time work and still have a mortgage to pay.
“Retirement is different now than it was, and as people look at these plans and consider how they retire, and what those years will look like, they are talking more with advisers about such fixed-term solutions.”
