Death knell for annuities? What next for secured pension income?
More than £3bn was wiped off the share values of insurance companies and annuity providers within minutes of the announcement that annuities would no longer be compulsory for retirees.
At the close of markets that day Legal & General shares were down 8.4%, Aviva down 5.2% and more specialist retirement providers like Partnership Assurance and Just Retirement down 55 and 42% respectively. Combine this with the Financial Conduct Authority (FCA) findings that the annuity market ‘was not working well’ and the future for annuities appears grim.
Our view is that annuities will continue to play some role in providing an income for retirement for some time to come. For those with health issues, however minor and trivial they may seem, enhanced life annuities can provide an attractive option at retirement or later down the line.
So what now for secured or annuitised forms of pension income? There will always be a large population approaching retirement that demand certainty and the alternatives to annuities lack certainty. There will also always be a significant level of retirees who do not want to have any link or association with the stock market and the alternatives demand some link to markets in order to supply income. Finally there will also be those that are too lazy to either shop around, consider other alternatives or simply opt for the status quo. There are also those who are worried by longevity and that alternative forms of income may exhaust the pot one day.
Although potentially out of vogue we believe annuities are here to stay and may play an important role in providing a long-term stream of income for retirement and protection against the financial effects of longevity.
Please note that planning for retirement is a complex process and you should seek professional advice in order to be certain that the right decisions are taken.