Helen Morrissey, spokesperson for long-term savings and retirement at Royal London, said annuities still had a pivotal role to play in retirement portfolios. “It is certainly not the end of annuities for the vast majority of people. For most people at some point in their retirement there is going to be a need for a guaranteed income.”
She added: “For [most] people, age 65 is not the age to buy an annuity. With pensions freedoms, I am hoping people realise that they have flexibilities to when they annuitise.
“I would like to see people annuitising later, maybe age 70-75, certainly not at age 60 to 65.”
Mr Speight said: “Until recently a 4 per cent withdrawal rate was deemed the ‘safe’ rate that ensured sufficient capital remained to fund a similar level of income through retirement, but research based on UK markets suggests the rate should be closer to 2.5 to 3 per cent.”
He added that while an annuity guarantees income however long you live, there is still the risk that the money under drawdown may run out, even with lower withdrawal rates.
Adrian Boulding, director of policy at Now Pensions, dismissed views that annuities have been underperforming due to low interest rates.
He pointed out that gilts have reached record prices amid a bullish bond market.
Mr Speight said: “It’s not about whether to buy an annuity, it’s just about when and where.”
He said the optimal solution for clients is to have “hybrid plans”, that is, use a combination of pension drawdown and buying an annuity.
MPAA
The interactive panel discussion on assessing the best option for retiring clients touched on the topic of cap-drawdown and whether changes to the money purchase annual allowance have adversely affected pension savings.
MPAA is intended to counter individuals from using flexibilities to pay into a pension, gain the tax relief and then withdraw the pension 25 per cent tax-free.
As of April 2017, MPAA reduced from £10,000 to £4,000.
Ms Morrissey said: “What I remember from pension freedoms, we had capped drawdown, flexible drawdown.
“The pension freedoms came into place, if you were in capped drawdown, you were not perceived to have triggered the money purchase allowance unless they breached those caps; we are still allowed to invest £40,000 a year into their pension.”
Capped drawdown differs from flexi-access drawdown, as the amount you can withdraw is capped at a specific amount. Capped drawdown withdrawals may not exceed the government actuary department by more than 150 per cent in any year.
“So for some clients it is a factor, but for many [MPAA] is not a huge concern,” said Patrick Connolly, chartered financial planner at Chase de Vere.
