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Where annuities sit in the new world

This article is part of
Guide to Blended Retirement Solutions

If you want a guaranteed income for life, no matter how long you live, Andrew Tully, pensions technical director of MGM Advantage, points out an annuity provides that.

And he says this shouldn’t be underestimated as most people want to know money will hit their bank account each and every month, enabling them to buy the shopping and pay the bills.

Mr Tully says: “While some are willing to take some element of investment risk, many are unsure.

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“And giving people a guaranteed base of income – from a combination of state pensions and guaranteed annuities – allows them the flexibility to manage the remainder of their funds as they see fit.”

The value in annuities is certainty, says Adrian Walker, retirement planning manager at Old Mutual Wealth.

If someone wants the peace of mind that they will receive a set level of income for the rest of their life then Mr Walker says an annuity is a good solution.

Using the premise that annuities provide an income for life means that they can underpin other types of retirement income and provide people with the freedom to spend other assets, says Mark Stopard, head of product development at Partnership.

Mr Stopard says those who opt for an annuity can be safe in the knowledge that they will always be able to meet their essential income needs. He adds these products also generally require minimal management and options can be chosen which mean that they can rise in line with RPI each year.

Again, when someone annuitises depends on their retirement ambitions but Mr Stopard says arguably, if they can delay making this decision slightly, they are more likely to be able to take out an enhanced product.

He says this will provide them will a higher income from their pot.

Mr Stopard says: “Of course, people can buy more than one annuity so they could phase the purchase over a number of year, converting pension savings into income as and when they require.”

But Simon Massey, wealth management director of MetLife, says most will probably decide not to put all their money into this one product at one point in time.

He says we are likely to see a growing trend of pensioners taking out annuity products as they grow older and are further into their retirement journey when they will want to secure an income for the rest of their life.

Mr Massey points out they may be entitled to enhanced rates as a consequence.

Those who want to take no risk at all, who want to know exactly what their future income will be and who are satisfied with accepting a guaranteed return in exchange for the certainty of insurance against living longer than expected, may still want to buy an annuity, he adds.

But Mr Massey says it is vital that they understand the implications of doing so and realise the risks they will still be exposed to.