Sales of retirement annuities to people in ill health plummeted by 44% in 2014 as thousands of people geared up to take advantage of new rules which will allow them to withdraw money from their pension pot in April instead.
Sales of all types of annuity have suffered since the new pensions freedoms that allow people access to their entire pension pot for the first time were announced by the chancellor last March.
But enhanced annuities, which pay out a higher annual income for those with a shorter life expectancy, have taken an especially big hit as those in ill health decide they would rather take the money while they can.
Sales were 65% lower on the fourth quarter of 2014 compared with the same period in 2013 and down 44% over the year as a whole, according to consultancy firm Towers Watson.
“The reductions in annuity sales, particularly to those with reduced life expectancy, are an inevitable reaction to people anticipating greater freedom about how they use their defined contribution pension,” said Jeremy Nurse, a director at Towers Watson.
“Declining gilt yields over the second half of 2014 continued to put downward pressure on annuity rates, which has only added fuel to the fire of doubt surrounding annuities at the moment.”
Laith Khalaf, a pensions expert at financial advisers Hargreaves Lansdown said: “If I was in ill health I wouldn’t want an annuity. The ideal situation for someone buying an annuity is a long life expectancy. Lots of people who do not have this will be thinking I’d rather have the money to enjoy now.”
Variable annuities, which offer a pension income linked to the stock market and make up a small part of the annuity market, have also suffered with sales down 22% last year on 2013, said Towers Watson.
The Association of British Insurers will publish sales figures for all annuities in 2014 on Thursday but its latest figures show sales were down 56% year-on-year to September 2014.
Standard Life said on Friday that its annuity sales dropped 66% last year.
