This has been hailed by individuals, financial brokers, and advisers – for instance, by combining state pension and an annuity, people can cover their fixed costs with the rest of the fund benefiting from flexibility and growth potential of drawdown for the non-essentials.
The Bank of England’s forecast that the cost of borrowing will remain high for at least the next two years, as it raised interest rates for the 14th consecutive time to 5.25 per cent, also reinforces the idea that annuities will likely endure for at least a few more years.
So while the pendulum of popularity may sway over time, the growth of pension pots in the wake of auto-enrolment and the understanding that a mix of annuities and drawdown can lead to better outcomes supports the belief annuities will persist as a compelling proposition for retirees in the longer term.
Why should people consider annuities?
So, why should individuals consider annuities among a myriad of retirement options? It’s all about reliability.
While specific scenarios such as needing a large lump sum in early retirement or inheritance planning might call for alternative approaches, annuities serve as a steadfast choice for those seeking a reliable income foundation.
Yet, there remains a challenge to overcome: the disconnect between enthusiasm and action.
In my experience, clients often express enthusiasm for guaranteed income but hesitate when it comes to purchasing annuities.
Annuities deserve a rebrand; a renewed commitment from the industry to educate the public about their value and their rightful place in retirement planning.
Overall, the re-emergence of annuities as a retirement strategy underscores their value in times of uncertainty. The symbiotic relationship between annuity rates and economic conditions creates a dynamic that can provide retirees with a reassuring sense of financial security.
While the appeal of annuities might fluctuate, the understanding of their potential as a stable foundation of a diversified retirement portfolio is gaining ground.
With this in mind, incorporating a mix-and-match strategy by integrating a guaranteed income for life, such as an annuity, into a client's retirement plan can provide a more tailored solution.
It can cater to both immediate and long-term financial needs, surpassing the traditional choice of either/or options.
Emma Watkins is managing director – retirement at Scottish Widows
