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Are annuities coming back?

Are annuities coming back?

Category: Annuities

Updated: 02/02/2016
First Published: 02/02/2016

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Annuities were dealt a huge blow with the launch of the pension freedoms. The reforms essentially meant that purchasing an annuity was no longer an obligation, as had often been the case previously, and this led to an inevitable drop in demand. However, it seems that the tide could be starting to turn, with a growing number of people realising the benefits that having a secure income can bring.

Consumers are craving security

The research, from eValue, shows that consumer preferences have gradually shifted back to the "safe haven" of annuities since the launch of the freedoms last April, and the volatility in global stock markets has been a key driver of this change of heart. In fact, the "turbulent markets of late August and September" led to the attractiveness of annuities hitting its highest point since the arrival of the freedoms, with many people craving the security that an annuity can offer.

The figures show that preference for guaranteed income (annuities, in other words) stood at 47% in October 2015, up from just 33% in April, while conversely, preference for flexible income (income drawdown) fell from 54% to 42% over the same period. For many, the risks involved in keeping a pension fund invested will be too much to bear during such periods of volatility, and given the latest bout of market turbulence, it's largely expected that annuities could see a further spike in popularity in the coming months.

"At a time of market volatility with equities trending lower, the risks for retirees using drawdown are considerable," said Bruce Moss of eValue. "This is particularly the case if they are in the early years of retirement, since their retirement wealth could be eroded rapidly unless they reduce their income."

The issue becomes even more pressing when taking longevity into account, as unless an income is guaranteed, there's a very real chance that a pension pot could run out later on in retirement, particularly if those funds remain invested in uncertain markets. There's also the need to determine how much income you can take from your pot in order to make it last, something that will require in-depth financial advice.

Annuities aren't dead!

After much speculation that the pension freedoms would signal the death of annuities, it seems that this categorically isn't the case. The desire to have a guaranteed income for life will still be strong for many savers, and with such volatility in financial markets, many simply don't want to run the risk of their savings being eroded. Find out more about annuities here, and see if they could provide the retirement income solution you need.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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