Internal annuity sales

SallyG

http://www.moneymarketing.co.uk/news-and-analysis/pensions/why-have-internal-annuity-sales-not-fallen-since-the-budget/2016524.article

"Information published by the trade body today shows year-on-year annuity sales plummeted 42 per cent in the second quarter, from £3.1bn in Q2 2013 to £1.79bn this year. The number of annuities sold during the period also fell year-on-year, from 89,896 to 46,368.
Third quarter annuity sales were down 50 per cent, from £2.92bn to £1.47bn.
However, the ABI says while external annuity sales have fallen massively as a result of the Budget, internal sales remain at similar levels.
The ABI says this is “likely” to be because people are continuing to take advantage of guarantees but according to the FCA only 50,000 of the 420,000 annuities sold in 2012 had a GAR, representing just 12 per cent of sales.
Fidelity Worldwide Investment retirement director Alan Higham says: “Guaranteed annuity rates are present in about one in ten policies across the market. So while this may be part of the explanation, it appears that internal customers continue to be unengaged and follow the default pattern of buying an annuity from their existing provider." "

dunstonh

Its likely that those getting advice are being told to wait or use other options whereas those not getting advice are carrying on as normal oblivious to the changes.

jamesd

That's very worrying, suggesting that more substantial action is required to prevent consumers from being sold internal annuities when they should be shopping around or picking a more suitable product. Given market incentives it might take an outright ban except for products with special features like GARs.

Linton

dunstonh wrote: »

Its likely that those getting advice are being told to wait or use other options whereas those not getting advice are carrying on as normal oblivious to the changes.

Could be, but I find it very worrying as in my view an annuity is the right choice for perhaps the majority of people who merely want a steady guaranteed income and dont have the knowledge or desire to become actively involved in their investments. The benefits of the change are I think being oversold to the general public.

dunstonh

Linton wrote: »

Could be, but I find it very worrying as in my view an annuity is the right choice for perhaps the majority of people who merely want a steady guaranteed income and dont have the knowledge or desire to become actively involved in their investments. The benefits of the change are I think being oversold to the general public.

I agree. The media has focused on the drawdown options. I dont believe I have seen one media article mention how annuities will be allowed to offer different death benefits from next year too.

I would not be surprised to see annuities with enhanced death benefits being a key option from next April. That would give certainty of income with funds being able to be passed on to the next generation.

atush

I am coming around to this same opinion.

and just this WE read an article abt miss selling of annuities. It will be a whole new whip round of punishment. and yes maybe the regs abt mentioning whole of market should have been made sooner. but I can see many who ignored the advice to do so claiming. and being successful.

I'd like to know when adults will start taking responsibility for their own financial folly. after all, I was offered PPI many times but turned it down as an unnecessary expense.

Sterlingtimes

atush wrote: »

I am coming around to this same opinion.

I'd like to know when adults will start taking responsibility for their own financial folly. after all, I was offered PPI many times but turned it down as an unnecessary expense.

On the other hand, I sought out PPI and was not missold it. I benefited from PPI when I was made redundant, I had my mortgage paid and received additional cash. To this date I use Legal & General PPI (for redundancy cover) alongside my PHI (for health cover). It may not financial folly.

jamesd

Linton wrote: »

Could be

The trouble is, we know that a person buying from the place where their money is held is usually going to get a lower annuity income than using the open market option. So the high inertia sales rate even with all the news looks like a really major failure of regulation and providers to get people to shop around for an annuity purchase.

Linton wrote: »

in my view an annuity is the right choice for perhaps the majority of people who merely want a steady guaranteed income and dont have the knowledge or desire to become actively involved in their investments.

Today I think that's so. I have hopes that we might see more people becoming educated in the future, if providers start the education process young and use the decades they have to get it done gradually.

bmm78

jamesd wrote: »

The trouble is, we know that a person buying from the place where their money is held is usually going to get a lower annuity income than using the open market option. So the high inertia sales rate even with all the news looks like a really major failure of regulation and providers to get people to shop around for an annuity purchase.

Not to mention the failure of people themselves to shop around.

The research used for the FCA review earlier this year indicated that 91% of people were aware of the right to shop around, but only 63% chose to do so.

The media have ignored the demand-side rational and behavioural issues, probably because it is a complex multi-faceted problem with no quick solution. I think the only way we can see significant improvements in consumer outcomes is through education; the guidance guarantee pays lip-service to this, but the process needs to start much earlier to have a meaningful effect.

jamesd

Demand-side issues definitely matter. Still, it's a pretty lamentable performance on the consumer protection front, from both firms and the regulator.

Something like a list of the top three payers for a range of annuity options, a reference number and number to call as mandatory content might do some good. It's pretty hard to beat top three quotes and a number to call to buy the one paying the most. Of course there's more to it than just cheapest quote but it should be way better than today. I think a change to list alternatives is to be required but I forget the details.

Longer term I agree with you about the value of education. We've a really large population to get educated into managing or at least understanding the volatility of DC pots. Plenty of time to do it give the decades typically involved when accumulating, but whether it'll happen is another matter.

bmm78

jamesd wrote: »

Demand-side issues definitely matter. Still, it's a pretty lamentable performance on the consumer protection front, from both firms and the regulator.

Agreed. The regulator has failed to put in place appropriate controls to ensure protection for consumers. Certain providers have taken advantage of that, knowing that if they issue the required information (in whatever format) and get the client to sign a declaration that no advice was given, people will continue to default into low paying annuities with up until this point limited recourse.

You can throw the current government into the mix, who have rejected any attempt to mandate the Open Market Option. While some would argue that they have indirectly addressed the issue with "Pensions Freedom", the resilience of internal annuity sales and decline of enhanced annuity providers would call that into question.

Anecdotal "evidence" admittedly, but what I'm seeing at the moment is consumers swapping one set of biases and irrational decisions for another, rather than any significant increase in engagement. The people who were making good decisions beforehand now have increased flexibility and scope for tax efficiency, which they will undoubtedly benefit from. Others though are struggling with the sudden increase in choice, and are tending towards deferring, disengaging and defaulting (ie taking the first option). The first is understandable, but the latter two are not positive signs.