Pension annuity sales increased by a quarter (24 per cent) last year to reach a 10-year peak of 89,600, numbers from the Association of British Insurers show.
The figure is a post-pension freedoms record for annuities, which dropped in popularity after freedoms were introduced in 2015.
Annuity rates have also been rising. Average annuity rates reached 7.65 per cent in September, according to Standard Life.
Despite growing sales and rising rates, analysis from the Financial Conduct Authority shows that annuities remain behind drawdown in popularity.
As the regulator also noted in its thematic review of retirement income advice report, many invest in retirement income solutions where their pension remains exposed to investment and mortality risks, rather than securing a guaranteed income for life.
Despite the investment risks, the flexibility of options like drawdown remains a preference.
The FCA’s Financial Lives 2024 survey found that most people (38 per cent) who had accessed a defined contribution pension in the past four years prefer to have flexibility to choose how much they take throughout retirement. They were even willing to risk running out of money in the long-term.
Flexible retirement
Despite the risks of flexibility, longevity risk can be mitigated; withdrawals can be paused during market lows to minimise the effects of drawdown risk, or managed for semi-retirees whose personal allowance is also being used by their salary.
Multi-asset investing can also have a role in semi or ‘flexible’ retirement.
In a 2024 survey from Aegon, two in five workers (40 per cent) said they planned to change the way they work, such as working part-time or on temporary contracts, before eventually retiring.
“There is often a need to fill the gap between reducing working hours and receiving the state pension. Multi-asset income funds can be very helpful to support flexible retirees, because they keep individuals invested in markets allowing their savings to continue to grow, while also paying out a stable income,” says Georgina Taylor, head of client investment solutions for EMEA at Invesco.
If retirees are not sure of their income requirement, Taylor adds that some multi-asset income funds provide a smoother total return experience versus a typical multi-asset growth fund.
“This can provide a source of reasonable total return for investors if they choose not to take income immediately, but keeps the option open for them to draw an additional income should they need to.”
For clients looking to supplement earned income from their investments, and therefore likely to be looking for stable and growing income, Richard Parkin, head of retirement at BNY Investments, says this is something that multi-asset income funds can provide.
“In addition, they will ideally pay income in a way that aligns with client needs,” he says. “Funds that can structure income as equal monthly payments will mean the client knows what they’re getting each month, which will be essential when looking to replace regular monthly income from work.”
