Q: What should I do if annuity rates have fallen?
Most annuity providers guaranteed the rate offered in a quotation for at least 14 days, according to Katherine Oxenham, business development director of Annuity Direct.
She said providers will often extend this guarantee period provided they receive the application during the initial guarantee period.
Having identified the client’s income needs, Mike Morrison, head of pensions development at Axa Wealth, said the reality of the situation is falling rates mean either having to buy a lower income, having to change the type of annuity being considered or deferring purchase in the hope that rates improve.
If you delay annuity purchase, in the hope that rates will rise later, Nigel Barlow, director of technical product development marketing of Partnership, said there are a few important considerations:
* Annuity rates may not recover.
* Your client’s fund could fall
* Your client will need to be able to survive without the income (or be able to replace it in some way) for the period of deferral.
* You could consider an alternative product in the hope that income rates will improve in future.
* Income drawdown.
* Investment-linked annuities.
* Third way products such as limited period annuities.
Andrew Tully, pensions technical manager for MGM Advantage, warned annuity rates have been on a downward trend for many years and this is likely to continue.
However, he said there will be peaks and troughs as interest rates and gilt yields rise and fall.