Are the new UK pension freedoms changing behaviour?
With the new pension freedoms on offer since 6 April 2015, there has been much discussion as to whether individuals would change their behaviours. The Association of British Insurers (ABI) published some data over the summer that showed those old enough to access their pensions are increasingly favouring pension income drawdown policies over annuities.
Just a few years ago, annuities made up a large majority (up to 90%) of the policies purchased but since the changes came into effect in April, the demand for annuities has sharply declined. The increase in popularity of the drawdown is noticeable despite some providers still lacking flexibility in the drawdown options that the Government was aiming for.
In just the first few months, the split between those choosing income drawdown and annuity policies are nearly even with 52% choosing flexible income drawdown. It seems like individuals are favouring the ability to maintain flexibility in their drawdown schedule as opposed to locking themselves into a specific amount of income from year to year. This is likely more aligned with the way individuals tend to live their lives these days, with income needs in retirement varying from year to year. It is also possible that the persistent low interest rate environment may also be a factor leaving individuals hesitant to lock into an annuity at potentially less favourable rates.
Only time will tell whether the perceived shift persists or whether at some point changes in the economy or product offerings will further influence behaviour. In the early days though, it seems clear that individuals are welcoming the opportunity to maintain flexibility and find a drawdown solution that meets their individual needs and circumstances.
Risk Warnings and Important Information
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.
MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.