Retirement planning is the crux of most financial advice.
Not only does it need to take into account individual circumstances and wishes, but also rising longevity. The process can become even more complicated if the client has spent time living and working overseas.
Pre-pension freedoms, annuities were the default option.
But the landscape changed dramatically when then-chancellor George Osborne introduced greater flexibility from April 2015.
Understandably, this led to a significant drop off in the number of annuities purchased – twinned with a reduction in the number of such products on the market.
Coupled with the dwindling number of defined benefit pension schemes, there are now fewer guaranteed income options available to retirees.
International Adviser reached out to the industry to understand whether there is a growing demand for annuities, or annuity-like products, to make a comeback.
More options
Andrew Tully, technical director at Canada Life, said: “The pension freedoms redrew the retirement income landscape as people moved towards a more flexible way of managing their finances using drawdown.
“But five years on, a new norm has emerged as clients continue to value the certainty that only an annuity can provide.”
Tully said that there are greater options post-pension freedoms that were not accessible to retirees before 2015.
He continued: “Annuities can offer good value for clients, and with the option to provide longer guarantees or 100% money-back options, which were not available before the freedoms, they are often used as part of a blended retirement plan or as an asset as part of a wider retirement portfolio.
“Some clients start their retirement journeys using solely drawdown, and then move some – or all – of their money into annuities over time as they look to de-risk in the later stages of retirement.
“It’s the industry’s responsibility to offer innovative and flexible solutions to support customers throughout their retirement and to ensure their pension pot is working hard for them.”
Combination is key
St James’s Places’s Claire Trott believes there will always be a place for annuities within pension planning and advice.
“They are still needed for those that want a guaranteed income for life, especially with less people getting defined benefit pensions in retirement,” she said.
“The main difference is that they can be combined with more flexible options to give clients the protection they need without locking away all their liquid funds for life.
“This could mean purchasing an annuity to cover the necessities and leaving the remaining funds invested or purchasing annuities at different points in retirement to suit the clients changing needs.”
But SJP’s head of pensions strategy thinks that, while there is a need for such products, annuities won’t become the preferred choice as they were in the past.
“What I don’t expect to see is a return to annuities being the default option at a single point in time, where a pension scheme member converts their whole savings into an annuity,” she added.
“It is key to establish how much risk the client is willing to take over their income in the future and what is likely to be variable in their lifestyle going forward.
“This is good to determine the level of flexibility that needs to remain, versus locking in an income for life.”
