The revelations in the budget have no doubt changed the pensions landscape forever. Those with small pension pots that would have likely been offered an annuity with a very low level of income are likely to benefit from the budget announcements.
However, is it really the death of the annuity?
Cleaning Up Their Act
We have commented on some of the questionable practices that take place within the annuities market, and the flexibility that these changes will offer means that many of the target audience for these types of provider are now able to make decisions that don’t necessarily involve buying an annuity.
James Mann, Director at Simpson Millar Financial Services Ltd comments:
“The budget announcements have highlighted that bad practice within the annuity market must come to an end. It is simply not possible to get away with selling a poor annuity product – and rightly so.”
Are All Annuities The Same?
Depsite a lack of confidence in the market, there will still be many people who will benefit from purchasing an annuity and being provided with a guaranteed income in retirement, particularly those who qualify for an enhanced annuity.
An enhanced annuity takes into account additional details, such as medical history (heart conditions, stroke, diabetes, cancer) and lifestyle factors such as consumption of alcohol and whether someone is a smoker.
The graphic below demonstrates some examples of enhanced annuities and the higher rates of income you may be able to receive compared to a standard annuity.
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“I believe enhanced annuities will remain an attractive solution at retirement compared with conventional annuities”, added James.
“Some individuals will still opt for an annuity as they will favour the income certainty it brings, meaning that budgeting can be done far more effectively knowing that a regular income is being received each month. They also take away the risk of capital running out in the later years of life which is still an important factor for many to consider when life expectancy figures continue to increase.”
The Future For Annuities
The annuity market is without doubt going through a stage of uncertainty. But it isn’t fair to say it’s dead.
The industry will have to be innovative to compete, but this is a good thing for consumers. It will give people more options at retirement and hopefully add competition to the market in terms of rates, which has been lacking for many years.
Nicola Hartley an Independent Financial Advisor at Simpson Millar Financial Services Ltd comments:
“Whilst we expect the annuity market to slow down in the immediate future, it will settle leaving a greater responsibility on empowering people to make the right choices for income at retirement.”
“I think we can expect the open market for annuities to grow. Enhanced annuities where health or lifestyle issues can achieve higher income will bare the brunt of this.”
To make the most of the new freedom to choose, you have to know what all of your options are, and there’s a lot of them out there.
Any retirement decisions you make will affect you for the rest of your life, so making sense of all of your options is vital.