Last March, in his 2014 Budget speech the Chancellor George Osborne announced sweeping reforms to the way pensioners could access their lifetime of pension savings.
No longer would purchasing an annuity be a necessity; no longer would retirees be tied into an annuity contract; and no longer would retirees have no responsibility over how they managed their retirement income.
Caps and restrictions were to be lifted on income drawdown, giving pensioners the ability to access their entire pension savings as a cash lump sum if they so desired.
What was referred to as a ‘death blow’ to annuities was to allow complete freedom over how retirees drew a retirement income from their pension fund.
The new tax year loomed ever closer, with most pension providers only just getting their processes in place to deal with the new freedoms, many expecting a year’s worth of new business just in the first few months of the new rules coming into effect.Billions of pounds were expected to be withdrawn from pension funds across the country.
Then, when April 6 finally arrived, moving us into the new tax year and bringing the pension freedoms with it, the phones weren’t ringing. Or more accurately… the phones were ringing, just not about cashing in whole pension funds.
It was today reported that pension provider Hargreaves Lansdown took hundreds of calls on 6 April… but less than 8% of them were about withdrawing a whole pension fund.
The remaining calls were mostly about long-term retirement planning, including income drawdown plans over a length of time, or even those much-slighted annuities.
So while annuity rates and sales were expected to decline in the wake of the pension freedoms, it looks like reports of their demise may have been greatly exaggerated.
They are still the most secure retirement product for many pensioners, especially for those who are adverse to a great deal of risk, providing a guaranteed income, often for life.
It looks as though the pension freedoms, while great for many pensioners, may not cause such a radical shake-up to the pensions industry as once predicted.
While it is still early days, and people will always want more control over how they manage their retirement income, we think annuities will be sticking around for a little while longer than many originally thought.