Annuities are back in fashion, say the experts |  Money Marketing

Annuities are back in fashion, say the experts | Money Marketing

Annuities have seen renewed interest as markets remain volatile this year, experts say.

An internal analysis by Standard Life shows that annuity rates increased by more than 25% in July 2022.

Canada Life also improved its annuity rate by about 30% this year and saw a 20% increase in listing activity over last year.

Its director of retirement income, Nick Flynn, said: “PPeople are looking for some security.

“Annuities provide guaranteed income for life regardless of changes in markets or interest rates once purchased.

“We get a lot of annuities from annuity brokers, obviously, but now we’re seeing the more general IFA population. It was the market that suddenly changed.

“Annuities are becoming increasingly popular. All statistics and numbers look like this.

“Our quote volumes have increased by more than 20%. Our manual and online quote numbers are higher than they have been in the past five years. »

Standard Life’s managing director of individual pensions, Claire Altman, has also seen a similar trend.

She said: “It is interesting now to consider the role annuities play in providing lifetime income, given the recent increase in annuity rates which continue to look positive.

“There seems to be a renewed interest; not just in retirement, but among the retired population, as advisors return to their clients to reassess whether their current drawdown arrangements remain appropriate and will deliver the right outcome.

“In the current climate, as defined benefit (DB) benefits continue to decline and the S&P and other major indices are down or remain volatile this year, the income security offered by annuities may prove an attractive feature to incorporate into retirement planning given the management challenge. investment risk in the current market environment.

Longevity is another factor at play in the annuity revival.

Altman added: “Stating the obvious, as people age, their need (and their families’ need on their behalf) for financial security only increases, and with people living longer and incomes expected to expand further, people will need help to ensure they can maximize their retirement income.

“Clients want to know that their money won’t run out – and that’s where annuities can play such a vital role, providing people with income security for the duration of their retirement.

The number and proportion of people buying annuities dropped significantly after retirement freedoms.

Clare Moffat, Head of Middle Development and Technical Team at Royal London, sees a range of reasons for the decline.

She said these were: annuity rates were historically low; many people, especially those between the ages of 55 and 65, were only looking to withdraw their money tax-free and were not looking for retirement income at that time.

Additionally, stock markets were in a long bull run and annuities had become almost a dirty word, with the perception that they represented poor value for money.

Moffat added, “Interestingly, people often say they don’t want an annuity, but when asked what they would like from a retirement income product, they list factors like certainty, simplicity, an income that will last as long as they make it, protection for their dependents. This description sounds a lot like an annuity.

Given the current economic environment, buying inflation-proof annuities might be tempting, but Flynn warned there are downsides.

He said: “The reality is that inflation-proof annuities are expensive. You are looking at about a third less income.

“It’s a desirable feature, but it’s also an expensive feature. We haven’t seen many people choose this option, but we’ve seen plenty of quotes.

“It’s a tough choice, because inflation is raging right now, but in two years it could be close to zero.”

Nonetheless, Altman expects annuities to play a bigger role in the retirement proposition going forward.

“Increasingly, we expect to see providers integrating annuities and annuity-like products into their retirement proposition to meet customer needs for security and flexibility, given the overwhelming case for annuities to be used in combination with a swab rather than as an alternative to it,” she says.

As for Flynn, he expects more providers to join the annuity market in the future.

“There are a few people who make noise when they come to the market. I don’t think they’re quite ready yet, but I’m sure they will be,” he said.

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