Sales of retirement annuities, which give pensioners a guaranteed income, have jumped, according to figures from the City regulator.
Purchases of retirement annuities increased by 13.2% to reach 100,144 in the year ending March 31, up from 88,430 in the previous year, the Financial Conduct Authority (FCA) said.
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown said: “Soaring incomes are driving retirees back to annuities, with gilt yields helping to push annuity rates skyward over the past few years.”
She said Hargreaves Lansdown’s annuity search portal “shows a 65-year-old with £100,000 pension can get up to £8,061 per year from a single life annuity with a five-year guarantee.
“This is more than 60% up on the £4,940 available five years ago and has been tempting people in search of a level of guaranteed income back to the market.”
Ms Morrissey said: “It’s vital to do your research before you purchase an annuity though.
“An annuity can’t be unwound, so think about what type of annuity best meets your circumstances.
“If you’re married, you may want to consider a joint life annuity that keeps paying an income to your spouse when you die.
“Opting for the higher income offered by a single life annuity could see them left with nothing.
“You also don’t have to put all your eggs in one basket and annuitise your entire pension at once.
“Annuitising in stages lets you secure income as your needs evolve while keeping some flexibility in drawdown.”
People with some medical conditions may also be able to get enhanced annuity rates, making shopping around for the right deal for individual circumstances important.
Pete Cowell, head of annuities at Standard Life, said of the increase in annuity purchases: “Attractive annuity rates and the certainty of a guaranteed income remain important drivers, but wider financial planning considerations may also be influencing behaviour.”
The FCA also said the total number of pension plans accessed for the first time increased by 7.4% to 1,047,008 in the year ending March 31, compared with 974,990 in the previous year.
Some 30.8% of pension plans accessed for the first time in the year to March 31 were accessed by plan holders who took regulated advice, which was broadly unchanged from 30.4% in the previous year.
Savers withdrew around £91.2 billion from retirement pots in the year to March 31, an increase of 21.7% compared with the previous year.
The proportion of pots accessed with a value of £250,000 or more also increased, reaching 8.6%, compared with 7.2% in the previous year, and 4.8% in the year ending March 31 2024.
Rachel Vahey, head of public policy at AJ Bell, said: “The fact that more people now have defined contribution pension pots is a factor.
“However, the concern is that people aren’t making decisions based on what’s best for them, but because they are worried about rumours of changes to pension tax incentives from the Government or planned changes in tax rules.
“Unless people make decisions based on their long-term retirement strategy, they could find themselves in later life having to rely on a much smaller retirement income than they wanted or anticipated.”
Sir Steve Webb, a former Liberal Democrat pensions minister who is now a partner at consultants LCP (Lane Clark & Peacock), said: “We desperately need a period of stability in government tax policy, as continuing uncertainty is destabilising and distorts people’s financial planning.”
Andrew King, retirement specialist at wealth management firm Evelyn Partners, said: “We would encourage all pension savers to think twice before making major withdrawals from their pots, especially in anticipation of rumoured policy changes that might not materialise.
“Another notable data point in this report is that – roughly in line with recent years – less than a third of savers took regulated financial advice before accessing their pension for the first time.
“Unplanned or ill-conceived pension withdrawals can be subject to big tax charges, can remove funds from an advantageous tax and investment environment, and could reduce your future standard of living in retirement, especially if they involve selling investments amid a market downturn.”
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