Pensions  

Scottish Widows enters annuities open market

Scottish Widows enters annuities open market

It is no secret that annuities are in the doldrums as the twin forces of pension freedoms and low yields make the alternatives to a guaranteed income relatively more attractive.

So, the news that Scottish Widows is now offering standard annuities on the open market is a welcome boost to a market with a small number of providers. 

Previously, Scottish Widows offered enhanced annuities on the open market and standard annuities to its own maturing pension policies.

Before Prudential exited the annuity market in 2016, and Just and Partnership merged, there were more than 10 annuity providers quoting annuities on the open market but that fell to just five; Aviva, Canada Life, Hodge, Just and Legal & General. And then in September Scottish Widows entered the market.

Most advisers and individuals buy standard (good health) annuities from the company offering the best rate, which means other than price there is little differentiation between annuity providers.

All companies offer the most popular options, such as joint life annuities and escalation, but not all companies offer inflation-linked annuities. 

The entry of Scottish Widows into the standard annuity open market means there will be more competition, which in theory may result in higher incomes for annuitants. 

But annuity pricing is a complex matter. Companies price their annuities to make a reasonable profit rather than to gain market share, so we should not expect any significant competitive edge to the market.

I think we should move the focus away from price and how much extra income can be obtained from health-related enhanced annuities and focus on the benefits of annuitisation.

Annuities have been criticised for a number of reasons, but the two main reasons are low annuity incomes and no lump sum death benefits. There is nothing we can do about low annuity incomes. That is a result of low bond yields resulting from quantitative easing following the 2008 credit crunch.

But we can fight back on death benefits because the flip side of no lump sum on death is that annuities insure annuitants from outliving their income.

If annuity providers want to increase the overall sales of annuities they should look to promote the advantages of the annuity concept, especially as there is a mistaken belief that drawdown can easily produce a better outcome than an annuity.

Billy Burrows is retirement director at Better Retirement