Pensioners could well be rejoicing after last week's announcement that they're going to get more flexibility over how they can spend their pension pot, but the annuities industry isn't feeling quite so joyful. There are fears that Chancellor George Osborne's plans could shrink the annuity market beyond all recognition, but is there cause for concern?
According to Nigel Wilson, chief executive of pensions provider Legal & General, yes. He's predicting that the amount of money going into individual annuities could shrink to around £2.8bn per year – a reduction of some 75% on the current £12bn total – as savers can access their pension pots to invest however they like, with it being thought that some £5bn per year will be taken in cash.
However, that's not to say that these predictions will come true. Even though pensioners can opt for alternative solutions should they wish, chances are a lot will still opt for an annuity.
So, will you want one? Well, you might if you'd prefer to have the security that annuities can offer. An annuity will effectively give you a guaranteed income for the rest of your life, and although you can choose the likes of income drawdown or even putting the entire lump sum in different investment vehicles should you wish, you're not guaranteed to generate the same kind of income.
What if you run out of cash? What if you invested the entire lump sum in an investment that failed? Everything you'd built up would effectively be gone, and you'd need to rely on the paltry income that the state could provide instead.
The key is to remain sensible, and what you should definitely not do is spend the lot. There are fears that pre-retirees could, on having access to their entire pension pot, blow it on luxurious purchases such as sports cars, and whilst this is always a possibility it's hoped that most people approaching retirement would have more logical heads on their shoulders.
People that have worked hard all their lives to ensure a comfortable retirement will want to make sure they're able to enjoy it, so many will still want the security of a guaranteed, fixed income that only an annuity can provide.
Of course, it could well be tempting to invest it yourself, particularly if you're disillusioned by the run of poor annuity rates the market has seen over the last few years, but you never know, the fear of losing annuity sales could mean providers improve their rates… The choice is entirely up to you, and whether you want to spend it, invest it or opt for the likes of income drawdown, it's your prerogative.
But, no matter what you decide, the annuity market won't necessarily be gone altogether. The most important thing you can do is get professional advice (offering free, impartial advice to pre-retirees was another Budget promise), but in the meantime you'll want to speak to annuity specialists so you can consider your options and find the solution that works for you.
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For more information on annuities/retirement speak to an adviser directly on: 01737 233 435 (quoting MF106 when you call)
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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