Annuity rates are set to grow in 2019, as gilt yields go up and life expectancy increases begin to level off, Canada Life's Andrew Tully has argued.
The pensions technical director at the pension provider told FTAdviser that demand for annuity products is likely to grow as rates go up.
He said: "Despite suggestions that the pension freedoms signalled the end of the annuity, around £4.5bn is being used to buy annuities each year.
"It is clear some people still value the security and certainty of income which only an annuity can provide."
Mr Tully explained that gilt yields have fallen fairly steadily for the last 10 years, reaching a low point just after the vote to leave the EU in mid-2016.
"Since then they have increased, still low in historic terms but well up on the lows of 2016. That has had a positive impact on annuity rates."
He also pointed that despite a number of providers leaving the market over the past few years, the ones that remain appear committed to the market and competition between them is high.
"We have also seen increases in life expectancy begin to level off which may help annuity rates," he noted.
FTAdviser reported in August that annuity rates are on course for their second successive year of increases, for the first time in more than a decade.
Data from Moneyfacts showed average annuity income rose between 1.4 per cent and 4.8 per cent in the first half of 2018.
Mr Tully argued that the continued demand for annuities may simply be due to consumers wanting peace of mind and security.
He said: "Drawdown can be a bumpy ride, especially if markets are volatile.
"It is difficult to predict where annuity rates will go. But for more cautious clients who want security and peace of mind they should be considered as an option or as a combination with drawdown."
FTAdviser reported in July that national advice firm LEBC registered a 17.3 per cent increase in annuity sales since the pension freedoms, countering the trend of declining sales found elsewhere in the market.
maria.espadinha@ft.com
