According to the Office for National Statistics, in just 20 years’ time the UK’s population is predicted to hit 74m – 18 per cent of that population is set to be people aged 65 and over.
Planning for the future has never been more important, particularly when considering the options available to help provide peace of mind and financial support in retirement.
This is where financial advisers play a key role. By helping those aged 55 and over to make informed choices about retirement planning, particularly when it comes to understanding and purchasing annuities, advisers can help retirees plan their financial futures.
The annuities market has experienced a lot of change over the last few years following the introduction of pension freedoms in 2015. Since then, the market has started to settle and rates are increasing, making annuities an attractive option for retirees.
For the right client, annuities can provide the assurance and peace of mind of a regular, guaranteed income in retirement.
They can also provide financial security for any dependants, if that is what the client wants.
For those with medical conditions or certain lifestyle choices, annuities can also be enhanced to offer a higher rate of income, providing the right health information is captured at the outset.
It is worth remembering that an annuity may not always be the right choice for every customer, but by not including these important products in the retirement toolkit, advisers could be missing a trick.
Lifetime annuities do pretty much what they say on the tin – provide a guaranteed income for life in exchange for all or some of the money in a pension pot.
To buy our lifetime annuity, your client must be 55-years-old or over and have at least £5,000 to invest after withdrawing a tax-free cash lump sum and paying any adviser charges if applicable.
There are a number of different options to consider when taking out an annuity and each of these will affect how much money is paid out as an income. Explaining this clearly to a client is key, so that they understand what they are getting and when they will get it.
The ways in which money can be taken from an annuity are:
- A tax-free lump sum – up to 25 per cent of the pension fund can be taken as a tax-free lump sum. However, it can only be taken at the start of the annuity, not later.
- A fixed income – the same amount of money is received each month, quarterly, six months or yearly for the rest of their life.
- An increasing income – the level of income increases by a fixed percentage each year for the rest of their life.
- Inflation-linked – the starting level will be lower, but will rise in line with the Retail Price Index (RPI), or RPI, capped at 5 per cent (known as limited price indexation) every year.
Catering for dependants
If a client wants to make sure their spouse, registered civil partner or financially dependent partner is looked after when they die, there are options available to make sure they continue to benefit from that income.
For example, a joint annuity will ensure that they receive an income for as long as they live, or for a fixed term if the named financial dependant is a child.
This will usually mean that your client will need to accept a lower monthly income while they are alive, and they will need to take numerous factors into consideration – for example, whether their spouse has a pension or annuity of their own.
Questions appear on the last page of this article.