Research from IRESS revealed that many consumers are waiting to receive guidance to understand the full scope of their retirement options from April 2015, as demand for single life annuity products from financial advisers are down 58 per cent from the start of the year and fell 4.6 per cent in June alone.
The report also found that the average pension pot for annuitants is at its highest level in two years, which suggests that those who have smaller pots may be putting off retirement until after April 2015, while those with larger pension funds are still choosing annuities as they have access to more flexibility already.
Danny Cox, head of financial planning at Hargreaves Lansdown, said, “It makes sense for those who have the means to delay their choice of retirement income product to consider doing so. Annuities will remain a popular choice for those who need a guaranteed income for life and, providing investors shop around and check obtain enhanced rates as appropriate, annuities are good value.”
A combination of state pension, annuities and other fixed, guaranteed income streams to cover essential needs in retirement is likely to become a more common route for retirees, as well as income drawdown solutions.
Peter Bradshaw, national accounts director at Selectapension, said, “As the 32 per cent usage increase of our drawdown calculators highlights, advisers are proactively investigating different options for their client’s retirement. Only working with a paid-for adviser gives clients access to a professional that has the industry tools to find the best retirement income for their circumstances.”
While annuity plans are no longer mandatory, the protection that they offer against increasing longevity will help them to remain relevant to financing retirement. Financial guidance provides an opportunity for advisors to boost general understanding of the growing number of options available to those who have not previously sought advice.
The IRESS report also highlighted the variation in annuity rates prospective retirees may face, with the average best rate available in June for a standard single life annuity at 5.73 per cent, compared o the average worst rate of 5.02 per cent. For the average annuitant, this is a difference in income of 12.5 per cent.
Nigel Barlow, director of product development at Partnership, said, “The fact that this research reveals a gap between the best and worst annuity rates of as much as 12.5 per cent clearly highlights that taking time to speak to a financial adviser and shopping around is something that everyone should be doing.”
Building awareness of eligibility for enhanced annuities is also a crucial part of ensuring proper guidance. At present, 28 per cent of annuitants secure some form of enhanced annuity due to a declared medical condition, compared to 12 per cent in June 2012, signalling that awareness of enhanced annuities is increasing.
Clients are encouraged to make sure that they find the right one for their situation rather than simply assuming that their existing pension provider can offer them the best deal.
Richard Williams, director at The Annuity Bureau from JLT, said, “We have always been strong advocates of education and guidance in the run up to retirement, so the promise of impartial guidance delivered by partners including the Pensions Advisory Service and the Money Advice Service is certainly welcomed. We strongly recommend those approaching retirement to seek similar independent advice so they too can take advantage of this reformed retirement process.”
