Separating fact from fiction: LV=
LV= has developed a guidebook for financial advisers, which aims to clarify which client circumstances and market changes are most suitable for recommending fixed-term annuities.
The Fact and Fiction guide for advisers argues there are many circumstances where fixed-term annuities provide a higher overall income in retirement.
Steve Lewis, head of distribution for LV=, said the report provided advisers with solid data that can “prove” that fixed-term annuities add real value in the right situation.
For example, a modest increase in gilt yields could make a fixed-term annuity a worthwhile strategy for many more retirees.
It could also be considered if a client has, or is likely to develop, a medical condition that could qualify them for an enhanced rate of 20 per cent or more.
Phil Perry, director of Cheshire-based Ark Financial Planning, said:
“To be honest, I’ve quoted on fixed-term annuities a few times recently and they haven’t been as attractive as standard annuities. But everybody is different and a fixed term is a fantastic option for many people who want some flexibility, particularly people whose health might deteriorate.”
Retirement can now last 20-30 years so fixing your options in advance at a single, irreversible point seems inappropriate
Fixed-term annuity should be considered if a client has a medical condition that could qualify for an enhanced rate of at least 20% further down the line
An enhanced uplift of around 19% should produce a better outcome
By age 75, 25% of men and 20% of women suffer from coronary heart disease
If the age difference between the applicant and the spouse or partner is five years, there is a shift in favour of the fixed-term route
If gilt yields return to 5.16%, a fixed-term annuity would be appropriate for most clients