Drawdown sales continue to outpace annuities

Written by Oliver Wade
06/09/2018

The sale of drawdown products continued to grow at a faster rate when compared to traditional annuity solutions, up 8% in the second half of 2017/18 from the same period in 2016/17, according to the Financial Conduct Authority’s (FCA) Data Bulletin September 2018.

The bulletin revealed that total inflows into drawdown grew by 27% to £11.1bn over the same period, with inflows of £22,4bn during the entire 2017/18 financial year. The FCA reported that the majority of this increase has been in the number of drawdown plans sold to new, rather than existing, customers.

In contrast, during the same period, annuity sales increased by just 1% with inflows of £2.1bn, a 7% decline. Throughout the full 2017/18 financial year, inflows were recorded at £4.3bn.

The authority’s data for 2017/18 indicated that 60% of drawdown sales during the period were for pots going into zero-income drawdown, where a tax free cash lump sum has been paid but no income has ever been taken.

Furthermore, the proportion of full cash withdrawals and annuity plans sold with advice in the second half of 2017/18 dropped to its lowest rate since the second half of 2015/16. This finding suggested that an increasing number of pots accessed through an annuity or full cash withdrawal are non-advised. The proportion of pots first entering drawdown where advice was sought has remained at 69%, meaning that just under a third of drawdown sales are still non-advised.

For the first time there has been an increase in the average contract-based pension pot size entering drawdown, rising by 18% from £105,000 in the second half of 2016/17 to £123,000 in the second half of 2017/18. In addition to this, the average size of a pension pot for which a partial lump sum withdrawal was made increased by almost 50% over the same period, rising from £62,000 to £92,000.

However, the average size of a pension pot fully withdrawn as cash during the period remained almost unchanged at £14,500.

Click here to read the full bulletin.

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