UK pensions head for highest sales in 10 years

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UK personal pension sales are set for their best year in a decade as higher interest rates and new financial rules push people back towards retirement products that provide a guaranteed income.

According to the Association of British Insurers, insurance groups sold £3.6 billion worth of personal pensions in the first half of 2024, up more than 50% on the same period last year.

That puts the market on track for its best performance since 2013 (under former Chancellor George Osborne). The Budget shocked Britain's retirement market by slashing the tax on people withdrawing pension funds.

The surge in sales was reflected in the interim results of some of the biggest UK insurers this month. FTSE 100 group Legal & General took in an additional £1.2 billion in premiums from personal pensions after a record year in 2023.

“Last year was already a good year, and what’s amazing is that this year we’ve doubled our growth compared to the first half of last year,” CEO Antonio Symes told the Financial Times.

He said more and more people are choosing to buy a personal pension with some of their invested money, as well as other options such as so-called drawdown products, which are products that still provide income from the funds invested.

Amanda Blanck, Aviva's chief executive, said private pensions, once out of fashion, were becoming popular again thanks to low interest rates and pension freedom.

She believes the market is likely to continue to grow. Interest rates will probably come down, but probably not to previous levels.

The interest rates on pensions backed by insurance companies through government bonds reflect yields in their prices, and in an era of low interest rates, these rates have fallen, which has been a major motivation for the Osborne reforms.

According to Hargreaves Landsdowns Pensions Comparison Service, a healthy 65-year-old with a $100,000 pension can currently receive a single pension (paid to one person) of up to $7,100 per year, paid for a minimum of five years.

Four years ago, the number would have been around 4,700.

In 2013, insurers sold nearly $12 billion in personal pensions. David Richardson, chief executive of Just Group, believes the personal pension market could eventually surpass that level, pointing to the growing size of so-called defined contribution pots.

“I don't see any reason why we should look at this as a ceiling as we did before,” he said. [DC] The amount of money you save for retirement will increase every year.

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One factor is the new so-called consumer duty rule, which requires advisers to demonstrate that they are considering the best interests of their clients. Insurers say this has spurred the promotion of guaranteed income products.

Today's retirees often mix tax-free cash with some withdrawn income while purchasing annuities as part of their holdings, and they are increasingly using this approach as they seek greater certainty later in retirement, executives said.

Yvonne Brown, ABI's director of long-term savings policy, said access to the right support to help people make the right choices was important.

She urged the Financial Conduct Authority to use its ongoing work on what constitutes retirement guidance and financial advice to open up more opportunities for people to get support with their retirement decisions.

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