Editor, Jack Jones thinks annuities are alive and kicking, but digital editor Sara Benwell disagrees – here’s why
No one (not even Jack) can disagree that annuities have had a shocking year. In fact, they’ve had a shocking decade. Ordinary savers hate them so much that then-chancellor George Osborne became momentarily popular when he announced that people would no longer be forced to buy one in the 2014 budget.
He became even more popular when told those people who already have an annuity that they’d be able to flog it on the open market.
The problem is that annuities have represented poor value for so long that they are now synonymous in people’s minds with being ripped off. A belief that hasn’t been helped as annuities have fallen in value by 15% in the last twelve months reaching the lowest point on record.
Essentially – if we thought annuities were bad before, a financial crisis, followed by quantitative easing, followed by Brexit, followed my more QE has decimated them even further, making most people wonder whether there is any point in buying one at all.
They are now synonymous in people’s minds with being ripped off”
Furthermore, even the product providers seem to have given up hope. Worried about demand, many insurance companies have merged or stopped offering annuities in favour of focusing on DB bulk solutions.
The problem is so stark that consumers who had previously been offered annuity rates have gone to accept only to find out the product is no longer available.
On the Pensions Awareness Day bus one visitor, Judith, was left disappointed when she tried to buy an annuity. She was keen to avoid paying unnecessary tax on a £20,000 personal pension plan and had decided to take an annuity, having previously been quoted a rate of £75 a month one year earlier. Unfortunately, when she contacted her provider, she was told they no longer offered annuities. Judith scoured the open market and was disappointed to be offered less than the previous rate and wasn’t sure what to do.
Experts on the bus advised her to explore UFPLS options instead.
So it seems the death of annuities could come about from supplier apathy as much as lack of demand.
Of course, the view that there will be no place in the future for guaranteed income in retirement is over-simplistic. Certainly managing a drawdown product at the age of 86 is unlikely to appeal to many.
The future will see a new product, rising zombie-like from their graves”
But it’s hard to imagine a situation where people will suddenly start believing that annuities are a fantastic idea. It feels like the reputation of annuities is beyond the point of no return, and the future will see a new product, rising zombie-like from their graves which do much the same thing but under a new, consumer-friendly name.
Guaranteed income products could easily have a place in the new world of pensions freedoms, and hopefully they will be marketed correctly and the array of choice available will force providers to become more competitive.
There’s also likely to be more variety in the types of annuities available and the way that people pay for them. For instance, the NEST blueprint has room for some sort of deferred annuity which is paid for in yearly instalments.
Another suggestion would be to look at ways to safeguard a member’s money in the event that they die very young. This addresses the concern felt by many people that they could save for all those years yet lose the money overnight if they die a few weeks into retirement. Products that do this are starting to emerge but are not well-publicised, and most consumers don’t even know it’s an option.
These innovations as well as those we’ve not yet even thought of could see the guaranteed income market flourish. But only if we drop the word ‘annuities’ once and for all.