Annuities are back in focus but it’s vital people don’t just get sucked in by the headlines and shop around for the best deal, warns Steve Butler, CEO at Punter Southall Aspire.
New data from the Association of British Insurers (ABI)[i] has revealed that sales of annuities surged 22% in Q1 2023 compared with the last quarter of 2022 – with 16,256 annuities bought – the largest number recorded since Q3 2019.
ABI also show more people are shopping around and switching provider for the first time since 2016, with more than 10,000 people buying an annuity from a different provider to their pension company, making up 64% of sales and totalling £847 million.
But ABI say one in three retirees are not switching from their existing pension provider and could be missing out on extra income[ii].
Steve said: “Annuities fell out of favour in 2015 when pension freedoms law created more flexibility in the retirement income market. In truth, rock-bottom interest rates at that time made them far less attractive in any case.
“Fast forward to 2023 and they make sense as interest rates rise, offering some certainty in a very uncertain time. Broadly, as interest rates rise, so does the value of an annuity. They are now at their highest level for 14 years, which does make them look more attractive.
“Their appeal is that they offer a guaranteed income for life which is a vital part of retirement planning. However the difference between the best and worst deals can be tens of thousands of pounds over a lifetime, so people need to be careful when purchasing an annuity and not just get carried away as they are back in fashion.”
ABI highlights that the gap between the top and bottom providers has widened – with a healthy 65-year-old now able to secure nearly 14% more annual income by securing the best instead of the worst rate[iii].
Steve adds: “Whilst it’s encouraging that more people are shopping around our message remains the same – everyone buying an annuity should be checking EVERY annuity on the market. People should never accept just one quote from their existing provider out of misplaced loyalty.
“Technology has made it extremely simple to check the whole of the market and there is a wealth of guidance and tools out there, such as our online calculator Pension Potential which searches the entire market and can show people how much their pension can buy, making it easy to see the right deal for them.
“Shopping around can significantly boost retirement income and just like people are now used to shopping around for insurance we encourage them to do the same at retirement. It could result in literally thousands more in retirement income, for a few minutes spent searching.”