A “demonisation” of annuities since the radical retirement reforms were announced earlier this year may lead to people eschewing the product in favour of unsuitable, higher-risk alternatives, industry figures have said.
A “demonisation” of annuities since the radical retirement reforms were announced earlier this year may lead to people eschewing the product in favour of unsuitable, higher-risk alternatives, industry figures have said.
Since chancellor George Osborne’s announcement at this year’s Budget that there will be more pension flexibility introduced from April 2015, annuities have rarely been out of the press.
Specialty annuity providers have reported individual annuity sales have fallen by 50 per cent or even more and, more recently, the pensions minister has talked about unwinding annuities to allow people to get a more suitable product.
For advisers, this could mean more clients for whom annuities are ideal, or at least suitable, will seek to use the wider range of freedoms and alternative options that may be higher risk.
John Reeve, senior consultant at Premier Pensions, told FTAdviser: “Annuities may still be the right solution for some people. However the demonisation of annuities in the press may mean that even those who should take this option will not do so.”
Mr Reeve added that life for IFAs will be more challenging as a result of the tarred brush that annuities now have post-Budget.
He said:“Getting people to see through the demonisation of annuities will be difficult for some IFAs.”
Andrew Tully, pensions technical director at MGM Advantage, agreed that there is a “danger that less people will buy an annuities” and that the key would be ensuring secure income product options were developed which do not have the negative association.
“There’s definitely still a big demand for the security, predictability bit so I think there is still a big market for a product that does that; whether its called an annuity or not is a different question entirely.
“There’s a danger that less people will buy annuities.”
In April, MGM was the first specialist to announce redundances, stating said it “would be madness” to ignore the radical pension changes announced in the Budget and will be launching a “radical new proposition”.
Mr Tully added that MGM Advantage are “positive about all the changes that are coming”.
He said: “We think giving everyone more responsibility is good but that does come with risk.
“The thing is if people don’t get advice then they might make the wrong decision. That’s the risk so there probably will be people who perhaps aren’t willing to take risk that end of up taking more risk than they should.
“There’s also a worry about scams and things like that.”
Mr Reeve added that elsewhere DB trustees are being seen as the “bad boys” of the industry by some scheme members, due to the fact that members are seeing in the news they can take benefits as cash and do not understand why this may not be applied to them.
“We are already seeing members who retire from a DB arrangement asking why it is that they cannot take their benefits in cash.”
ruth.gillbe@ft.com
