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This April sees the 10-year anniversary of the introduction of Freedom and Choice reforms that promised to revolutionise the retirement market. Most experts had expected a quiet budget for pension reform, but then-chancellor George Osborne announced changes that turned the retirement market on its head.
Prior to the announcement most people converted their pension into income using an annuity. This is where you have a contract with a provider to turn your pension into a guaranteed income for life. Income drawdown — where you remain invested in the market and draw down an income, was something that wealthier pensioners could access.
The reforms allowed retirees to use annuities if they wanted to but opened up the income drawdown market and allowed people to take their pension as cash, all in one go if they wanted to.
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As the industry digested this seismic shift, rumours were rife — the annuity market was dead, and everyone was going to drain their pensions, buy a Lamborghini and run out of cash. There were concerns that pension savers had access to choice without support, and that this could spell bad news for people’s retirements.
So, did these dire predictions come to pass?
Was it the end of the annuity market?
In a word no, but it has had its challenges.
Annuities had long been criticised for being inflexible and offering poor value and in the years that followed, the market shrank massively.
However, more recently it has experienced something of a revival, as soaring interest rates have boosted the incomes available.
The most recent data from Hargreaves Lansdown’s (HL.L) annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,585 per year from a single life level annuity. This is the highest income since unisex annuity rates were introduced back in 2012.
This has led to a surge in interest with recent ABI data showing sales in 2024 had reached a 10-year high. Annuities may no longer be the dominant force in the retirement income market, but for many people they continue to play an important role.
Did we drain all our cash?
Again, no. Despite concerns that people would drain their pensions, blow it on fast cars and be left with nothing, the much-publicised dash for cash did not materialise.
Data shows people have taken a more considered approach to taking cash from their pension. If pensions have been accessed in full it is often smaller pensions, or the member also has other pensions elsewhere that they can access for retirement.
Do people feel more connected to their pensions?
The announcements did help more people to engage with their pensions. They had the potential to remain invested through retirement if they wished.