The death of annuities may have been prematurely reported, according to financial providers.
Despite the advent of pension freedoms giving retirement savers easy access to their pension funds, annuities refuse to die and are evolving, says trade body the Association of British Insurers.
Issuing statistics designed to promote the sale of annuities for member companies, the ABI claims most savers with large pension pots are opting for annuities or flexible drawdown.
Annuities are insurance contracts that guarantee payment of a retirement income for life.
They have found less favour in recent years as their pay rates are linked to the value of gilts, which have suffered badly since the downturn.
Over 55s not shopping around for best deal
The ABI says the average value of a pension converted into an annuity is £58,100.
But only 50% of over 55s are shopping around and switching providers when they buy an annuity.
Despite government efforts to open the market, only half of investors looked to another company for better rates when spending £4.2 billion on 80,000 annuities in the first year of pension freedoms.
In the following six months – between March and September 2016 – another £2.35 billion was invested in 40,900 annuities.
This compares with 74,100 annuities sold in the first quarter of 2014, according to ABI archived figures.
Since then, the figures have declined to around 20,000 sales a quarter.
Cash v guaranteed income dilemma
“It was inevitable that fewer people would choose a guaranteed income for life if they had the option of a lump sum,” said Rob Yuille, head of retirement policy at the ABI.
“After an initial dash for cash the market is settling. While the numbers of those taking their pensions as a lump sum remains high, the average pot taken is relatively small with most funds going into either a guaranteed income for life or a flexible income product.
“Flexibility is more meaningful to those who have been able to save more. Auto-enrolment has worked well to get millions more people saving for a pension. The priority now has to be increasing savings levels, and ensuring self-employed and part-time workers don’t get left behind.”
The ABI is the voice of Britain’s financial industry, representing most leading insurance and pension providers.