The fall in annuity sales and the departure of several annuity providers from the market entirely has called into doubt the future of these guaranteed income products.
The appeal of income drawdown for many retirees has left the annuity market in the shadows.
But could there be a new market for annuities, or simply many at retirement who simply do not want to take the risks associated with stockmarket investments? If so, will this be enough to sustain an annuity market in the UK?
Andrew Tully, pensions technical director at Retirement Advantage, believes there is a market.
He suggests: “Annuities continue to meet the need of the majority of retirees who don’t like to take risk, especially for many people in the ‘middle market’ with pension pots of between £30,000 and £250,000.
“Our research tells us 29 per cent of people approaching retirement want to take no risk at all with their pension savings. The only sensible option for these people is some form of guaranteed income for life.
"Other customers may well want or need some element of certainty to cover their essential outgoings while retaining flexibility with the remainder of their savings. Annuities continue to be the only guarantee of an income for life.”
“Even though some providers have pulled out of providing annuities, there are others who are absolutely committed to the market and to developing the product to meet consumer demand,” Andrew Simon, executive general manager for product at Iress, explains.
“There is still a market for annuities in a post-freedoms world. While the challenges around retirement income should not be underestimated, individuals now have more choice and control than ever before.”
Poor image
That choice, it seems, has rather sidelined annuities.
He acknowledges in the sustained low interest rate environment of recent years means annuities have suffered from a poor image.
“But demand has stabilised and we are confident that annuities remain a key component of retirement income planning,” he says. “If interest rates rise, we would expect to see annuity rates and demand increase.”
Jinesh Patel, vice-president, investment consulting at Redington, lists further benefits provided by guaranteed income for life products such as annuities and confirms they can be a valuable option.
“They eliminate anxiety over ‘making your money last’ as they pay a guaranteed income for life and some will even continue paying out to partners on the death of the original holder, providing financial certainty at a time when you might be unable to supplement your income otherwise,” he says.
And he points out while the current low rates offered on annuities are not helpful, those who do take them out could end up protecting themselves from future market fluctuations.
