Don't write off annuities

Samantha Downes

Samantha Downes

Last week Standard Life announced it had stopped offering annuities to new customers.

The decision, which does not affect existing customers, was - surprise, surprise - in response to plummeting demand post the introduction of pension freedoms over 18 months ago.

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said Standard Life had not been an "active, competitive player" in the open annuity market for some time. Its annuities accounted for just 1 per cent of those bought through Hargreaves' broking service.

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Pensions freedoms aside annuity rates are pretty low - and there are better income stream options that can currently be bought with a pension pot.

But, and here’s the rub, they are not as reliable or - more to the point - guaranteed.

The security and reasurrance that comes with an annuity cannot be downplayed. Most investors, even ‘wealthy’  baby boomers, do not have enough accumulated in their fund to play hard and fast with their pension cash. 

In fact with life expectancy predicted to rise in the next few decades the long-term nature of annuity income is needed more so now than ever. It’s worth remembering that annuities were also written off when pension simplification - A Day - removed the requirement to purchase an annuity at retirement - back in 2006.

There have been attempts at so-called third way annuities but the investment element of such options remains too much of an unknown; particularly in today’s geo politically unstable world.

A decade ago immediate needs annuities were written off, but they are still being sold and in fact new providers have since entered the market. 

So, until providers re-invent can reinvent this particular wheel - annuities may be around for some time to come. Like so many things that are written off, they could even stage a comeback.