Annuity update July 2022
What's happening to annuities? – Annuity rates have increased significantly this year. Why are rates rising? – Bond yields have doubled since January How much have rates increased? – So far this year the income from a £ 100,000 annuity has increased by £1,300 per annum which is 35% Annuities rates are linked to the yields on fixed interest investments such as gilts and corp ...
Time to take annuities seriously
Annuities have always been a serious business* but since the introduction of pension freedoms in 2015 most retirees (and advisers) have not taken annuities seriously and many invested in pension drawdown rather than purchase an annuity.
Annuities have been unpopular for three reasons:
I have been advising clients about their annuity options for over 25 years and I too have not taken annuities seriously for the last 10 years because the since the credit crunch in 2008 rates have been so low, but I really believe that it is time to take annuities seriously again.
When the Retail Distribution Review (RDR) was put into place in 2013, financial advisers were banned from taking commission from investment and pension plans. This included advised annuities. However, the ban on commission did not apply to non-advised sales which means that non-advised brokers can still be paid commission. I have long argued that this is unfair and creates an u ...
The Case for Annuities
The case for annuities can be made very simply; they are the only policy that pays a high level of guaranteed income for the rest of your life. In this sense an annuity is a pension, and in the rush to introduce pension freedoms it is easy to lose sight of why you probably saved for a pension in the first place.
Annuity rates may be low at the moment but they are the only way of guaranteeing a regular income for the rest of your life with peace of mind and security no matter how long you live.
Is it a good time to purchase an annuity?
“Is now a good time to purchase an annuity”?
The thinking was that now fund values have increased since the March 2020 crash it might make sense for some people, especially those with relatively small drawdown pots, to purchase an annuity.
I understand from several annuity providers that annuity sales have increased significantly so it will be helpful to see if there is a case for purchasing annuities at the moment.
Engage with advice
I want to help people make the right decisions at retirement but it seems many people don’t want to help themselves by properly engaging with advisers.
In the old days (whenever that was), people were more open to taking advice and more trusting of experts but nowadays many people have a closed mind to advice and don’t necessarily trust advisers. This has not happened overnight but has crept us on us over the years, but the lack of engagement has been accelerated by events such as RDR which created the so-called advice gap and by changing attitudes and customer behaviour.
The big picture – There is an advice gap and some people think the answer is robo advice
What's the problem? – Just like the exams, robo advice relies on algorithms but these can disadvantage those who are less well off
What can de done? – Looks at ways to get real people involved with the advice process.