The benefits of guaranteed products are certainty and flexibility as these products ensure that clients will have a guaranteed income for life and can plan for the future.
Mark Stopard, head of product development at Partnership, lists the pros and cons of annuities as follows:
Pros – annuities
• annuities provide a guaranteed income for life – no matter how long someone lives;
• enhanced annuities are medically underwritten [i.e. personalised] so they provide those with lifestyle/medical conditions with a higher income;
• they provide piece of mind as once someone has one, they never have to worry about receiving an income each month;
• you can provide an inheritance to your family but rules/restrictions do apply and
• you can take up to 25 per cent of your fund as a tax-free lump sum.
Cons - annuities
• if someone dies ‘early’ and does not choose an guaranteed income period, they may not receive the ‘full value’ from their annuity;
• people need to consider their options carefully – i.e. joint-life, enhance, guarantee income period – as you can’t change your mind;
• once a pension pot is used to purchase an annuity, the client ‘loses control’, so it cannot be used to pay for care/other expenses and they do not benefit from investment growth; and
• people with small pots [i.e. below £10,000] will receive a very low income so arguable may be better advised to take the cash.
A major issue with guaranteed retirement income products is value and charges, which is why Simon Massey, director of wealth management at Metlife UK, says his company is concentrating on ensuring their solutions are value for money.
Mr Massey says: “Clients need to be aware of all charges and that should include charges for accessing their cash.
“In the conversations with the thousands of financial advisers that Metlife works with it is very clear that savers want to take full advantage of retirement freedom and look for new and innovative retirement solutions.
“Savers want access to their capital but they do not want the worry of running out of income in later life.”