Figures given by the regulator’s acting chief executive Tracey McDermott to the Treasury Select Committee showed that there were 89,000 annuities sold in the second quarter of 2013. This compared to 12,000 so far in the second quarter of 2015 – a fall of 87 per cent.
Ms McDermott said: “Some of this may be because there were more people waiting to access their pensions as result of the [19 March 2014] announcement of the pension freedoms, so we need to watch a little more over time to see what that this stabilises as.
“But I think we can be fairly confident that there will be a significant reduction in the amount of annuities sold.
“One of the most challenging things around implementing the pension reforms is encouraging people to think about longevity and sustainable income, so the risk warnings we require to be given make it very clear that this is the money you have to live on for the rest of your life, potentially.”
She told the committee that some providers are working on new products and said the FCA is working with them, but admitted that not very many had made it to market yet.
Ms McDermott said: “I don’t think it worries us [that few new products have made it to market yet] because I think we would prefer people to think about it carefully and get the product right rather than rush products onto the market.”
|Annuity Sales By Quarter According To The FCA|
One of the companies that launched a new product is Aegon UK. It launched variable annuities that generate approximately £7bn a year of new business in the US for the company.
Duncan Jarrett, managing director for retail and at Retirement at Aegon UK, said: “The challenge now facing those at retirement is how to generate a regular income.
“The ability to take cash as and when you need it from your pension might work well for those opting for a phased retirement, whereby they retain a regular income through work, but for those who are fully retired, a regular income is likely to be a priority.”
xxxx xxxxx, consultant at Evans Hart said: “While the pension freedoms have provided people with more choice on how they can access their retirement savings, it has not changed the basic fact that people need to make a relative fixed asset last an indeterminate amount of time.
“Annuities allow people to manage this risk by guaranteeing to provide a regular income whether someone lives for 10, 20 or 30 years in retirement.”