Annuities – Where are we now ?
When the ground-breaking pension changes were introduced in April 2015, many experts believed that they signalled the demise of the annuity. Media attention focused on the fact that under the changes no-one would be forced to buy an annuity. So it was hardly surprising that sales of annuities fell markedly in the following months. However, since then the economic scene has changed. Volatility in stock markets convinced some retirees that the certainty of income an annuity provides can be a good way to ensure that they had sufficient secure income to cover their basic living costs.
WHAT ANNUITIES OFFER
One of the main benefits that annuities provide is security. What you get in exchange for the purchase price is a pre-agreed, fixed payment for life. As long as you live, you will still receive an income. On the downside, should you die early, the residual value of the annuity dies with you, there is usually no return of capital to your estate, unless a capital protection option is chosen.
WHY IT PAYS TO SHOP AROUND
Seven out of ten people accessing their pension cash since the new pension freedoms came into force, who decided to take an annuity did so with their existing pension provider. This statistic reinforces the belief that consumers aren’t sufficiently aware of the options open to them at retirement. Many pensioners simply opt for the annuity offered to them by their provider, without realising that they are within their rights to shop around amongst other companies and compare deals, enabling them to make an informed choice.
Whilst staying with your existing provider might well represent a reasonable deal for your financial circumstances, taking advice may well throw up alternative options better suited to your needs.
THE SECONDARY MARKET FOR ANNUITIES
In March 2015, in a further move designed to give pensioners more choice as to how they manage their money in retirement, the government announced plans to allow people who already had an annuity to sell it for a cash lump sum. The introduction of the secondary annuity market was originally set for April 2016, but is now due to take effect in April 2017.
Following the formal industry consultation period, the Financial Conduct Authority (FCA) started the process of defining the standards for the market, including the requirement that sellers must seek proper professional advice before a sale can be made.
However, following the Brexit vote, there have been calls from the financial services industry for the launch to be put on hold in the face of future economic uncertainty. The view has also been expressed that there is currently a lack of clarity from the FCA over details such as suitability requirements.
Now that the UK has a new government team in place, including a new pensions minister, Richard Harrington, we may have to wait until the Autumn Statement before we have a definitive answer as to whether or not this initiative will go ahead, and if so what the fine detail will be.
The outcome of the EU referendum has not been good news for annuity rates. Falling interest rates and thus gilt yields have seen annuity providers reducing rates even further.
WANTING HELP ?
If you’d like to know more about Annuities or have an existing Annuity which you’d like us to review, we’re here to help.
As one of the leading IFA practices in Greater Manchester, Logic Wealth Planning has a team of experienced Financial Advisors specialising in Wealth Management. Working closely with clients in the Heywood, Rochdale, Bury and surrounding areas across the North West, we believe that however modest your income may be, when it comes to Pensions, Savings and Investments we provide the best financial advice, ensuring that your money is working hard for you and allowing you to enjoy a comfortable lifestyle right through to and including your Retirement years. For your first meeting with us – entirely free and without obligation – please call us now on 0808 1234 321. We look forward to hearing from you.