18 Aug 2014

Annuity Market

Annuity Market

Duncan Mellis, Independent Financial Adviser, discusses the annuity market following on from the last budget announcement. 

Duncan Mellis, Independent Financial Adviser, discusses the annuity market following on from the last budget announcement. 

Following on from the last budget, and the greater flexibility offered to clients with their retirement funds, many of the companies that were heavily involved in the annuity market are keen to state the case for annuities and the fact that for some clients they are going to remain a core element in retirement income planning.  For many years it has been important for clients wishing to purchase an annuity to shop around and also to have the potential to obtain an enhanced annuity. This will continue to be an important consideration for clients who wish to obtain security, while still achieving maximum value for their retirement.

To consider these options, please see our summary of the advantages and disadvantages an annuity may offer clients. We would recommend that clients obtain independent advice to look at all available options in order to be in an informed position.

A Guaranteed Income for Life 

An annuity is the only way to provide a fixed guaranteed income however long an individual lives for. As part of retirement planning, even an individual who favours income drawdown may still want to buy an annuity to cover a minimum level of living costs and regular outgoings. It is also important that clients shop around to obtain the best annuity rate.

One in Two people could Qualify for a Higher Income  ( Based on figures provided by Partnership*1) 

More than 50% of people at retirement age could qualify for an enhanced annuity and these typically offer rates 15-20% higher on average than a standard annuity for people who may have health conditions or lifestyle issues. This may make enhanced annuities hard to beat if seeking maximum guaranteed income is a priority.

Complete Clarity and Simplicity

With an annuity the income is guaranteed, regardless of market movements, how long an individual lives or any changes in the client’s circumstances. This for some will provide security and reassurance in retirement.  In addition, annuities are simple and clear to understand.  Once the annuity rate is ascertained the income will not change as there are no ongoing costs, fees or charges deducted.

However, once the decision to purchase an annuity is made, and after any relevant cancellation period, it is usually final and cannot be changed. An annuity would provide poor value for money if the annuitants (in case of joint annuities) died in early years (unless any guarantees are included) but again the more features that are included the lower the initial income.  It should also be noted that the level of income is based on how much someone has saved into their pension and varies between individuals. 

In summary, annuities may still provide an option for many clients but with such a variety of options available it is important to seek professional independent advice to ensure you make the correct choice for your individual circumstances as this decision could set in stone your future retirement income.

Duncan Mellis, Independent Financial Advisor

*1: Personal Financial Society magazine dated August 2014

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