PensionsJan 6 2016

Annuity market death reports greatly exaggerated

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      Annuity market death reports greatly exaggerated

      Google the phrase “annuities are dead” and the first result is a Telegraph article dated June 2014 with just that headline.

      Read the Telegraph article and it turns out to be more like advertorial for a well-known global fund management group for whom “The reforms present an opportunity … to innovate and create investment products that meet the needs of this new generation of retired people”.

      The fund manager’s prediction was that we should “expect to see the market for multi-asset funds flourish, with products designed to provide various combinations of capital preservation, inflation-beating real returns and income generation”.

      The second result of the Google search links to a trade press article published in FTAdviser three months earlier under the headline “annuities are not dead and buried”.

      This article contains the central thesis that “while annuities have been portrayed rightly as inflexible and increasingly poor value due to sliding annuity rates, for all their faults, they are a fundamentally sound principle: a guaranteed income for life to see you through your non-earning years”.

      The third result is headlined “Annuities are dead – long live annuities” published on www.over50choices.co.uk , a website providing financial services information and an online community for the over-50s.

      Pretty much everyone acknowledges that a lot of investors want an annuity Gill Cardy

      This provides a great explanation of the benefits of shopping around to increase the income from your pension fund.

      The piece also does a few sums and demonstrates the effect of tax on taking your pension fund entirely as cash, bringing some facts into a debate typically driven by opinion.

      The fourth result links to an article in Money Observer from an advisory firm detailing the circumstances in which annuities can still present good value.

      These include poor health, interest in lower risk solutions, a desire for certainty perhaps at a time of bereavement, a desire for stability in the midst of great uncertainty about interest rates and stockmarkets, and a recognition that you no longer have the financial capacity to cope with flexible options, perhaps as your funds have been depleted and would yield lower drawdown and investment income.

      The fifth links to an interesting blog on the Which? website, which repeats the mantra that the problem with annuities is that “usually your money won’t be passed on to your family should you die ‘early’”.

      Apart from the factual inaccuracy, it is worth having a read, not least because the subsequent trail of comments highlights the total confusion among savers and investors when weighing up income solutions and trying to assess what the best options may be.

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