A new report published by pension provider LV and aimed at advisers argues more clients should consider fixed-term annuities as market changes since last year now mean many clients could benefit from an overall retirement income boost of more than 50 per cent.
LV claimed if a client is suffering from a medical condition that is too mild to warrant an enhanced rate now but is likely to deteriorate over time or if there is a family history of ill-health, they could be better off with a fixed-term annuity.
Based on a client looking to retire at the age of 60 on 1 March 2014 with a £100,000 fund available after tax free cash, LV calculated if this client’s health has deteriorated - and thus they would later qualify for a 20 per cent boost from an enhanced annuity - and interest rates have increased by 1 per cent, income will increase from £4,710 to £6,080 a year – an increase of 52.6 per cent.
LV has used the latest data to create an online annuity calculator and app to help advisers identify where a fixed term annuity may or may not provide a better outcome for clients. Advisers can use these tools to create illustration charts and printable reports specific to a client’s individual circumstance.
Fixed-term annuities have come into the spotlight in recent weeks following comments at the turn of the year from Steve Webb, pensions minister, that suggested he was in favour of forcing annuity providers to offer a switching facility to clients similar to mortgages.
Many in the industry responded that the option would be detrimental to rates and that the facility already exists in the form of fixed-term annuities, but that clients are often unaware as they are rarely recommended by advisers.
Steve Lewis, head of distribution for LV, said: “With people spending longer in retirement many clients would benefit from increased flexibility as to how they take their income and we believe fixed term annuities have a valuable role to play.
“More advisers and customers now understand the benefits of fixed term annuities and as a result demand continues to grow.
“We remain committed to the fixed term annuity market and the adviser community and have launched our annuity calculator to help advisers to easily identify those clients for whom a fixed term annuity would be most appropriate.”