Poorer pensioners are increasingly leaving their money invested in the stock market rather than buying an annuity that offers a guaranteed income during retirement, according to new analysis by retirement specialist Responsible Life.
Since pension freedoms were introduced in April 2015, the number of pensioners with smaller pension pots buying smaller annuities has collapsed, preferring to invest in the stock market, which is recent months – due to volatility – has proved to be riskier than investing in an annuity.
Martin Parzonka, product manager at online-only pension provider Pension Bee said: “It’s normal to see the small fluctuations that occur in the stock market reflected in your balance. But it’s important to remember that, either way, these fluctuations are unlikely to have a lasting impact on your retirement income.”
Parzonka adds: “If you’re due to retire in the middle of a downturn (or upturn), and plan to withdraw some or all of your pension balance at that time, you could consider a plan that invests in a way that is very low risk and low return such as the Preserve plan.”
Steve Wilkie, managing director of Responsible Life, said: “This is a wake-up call for the government. Sales of annuities have gone off in vastly different directions at either end of the spectrum.
“It is only a matter of time before a great many poorer pensioners who abandoned annuities in favour of riskier bets on the stock market come unstuck.
“Many retirees will be launching themselves headfirst into financial difficulty because they took a risk with what little they had.”
The number of annuities bought with a value between £10,000 and £50,000 have plunged by more than a quarter in just two years, analysis of the latest official FCA data on annuity shows.
In the six months to March 2018, sales of annuities worth between £10,000 and £30,000 were 26.8% down to 9,143 in just two years. Sales of annuities worth between £30,000 and £50,000 had also plummeted 27.7% to 6,243.
Meanwhile sales of annuities worth significantly more — have risen.
Those worth £100,000 to £250,000 increased 7.3% in that period while those worth more than £250,000 rose an incredible 45.9%.
Sabuhi Gard is an investment writer at Incisive Works
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