Last week we reported that annuities were coming back into fashion, and today we have yet more evidence to back it up! It'll come as welcome news to many in the industry, particularly given the rapid drop in the popularity of annuities in the wake of the pension freedoms, as it seems that guaranteed income is still hugely desirable.
The research, from eValue, shows that the gap between annuities and income drawdown is shrinking rapidly, with there even being the potential for annuities to overtake drawdown in the popularity stakes if the trend continues. The figures show that the preference for guaranteed income (annuities, in other words) has risen from 33% to 41% since the launch of the pension freedoms, while the reverse has happened to flexible income (income drawdown) preference, which has dropped from 54% to 46% over the same period.
This follows figures from the ABI, which show that annuity sales during Q4 2015 were almost on a par with drawdown sales, the same trend as recorded by eValue. But what's driven this reversal of fortune and clear change in customer preference?
Well, much of the growing preference for annuities is due to market volatility, explains Bruce Moss of eValue, which can impact drawdown investments without affecting annuities. "At a time of market volatility, the risks for retirees using drawdown are considerable, particularly if they're in the early years of retirement, since their retirement wealth could be eroded rapidly unless they reduce their income," he said.
Essentially, if you keep your money invested in the stock market, as is the case with drawdown plans, your funds are at the mercy of stock market fluctuations, which could impact the overall value. However, with annuities, that isn't the case – once you've transferred your pension savings into an annuity plan, your income is fixed for life, regardless of what happens on the wider markets, offering a safer home for your money.
If you're approaching retirement age and need to decide how to turn your pension pot into an income, it's important to carefully consider all the options. Seeking independent guidance, such as through the Government's Pension Wise service, is a must, and you'll ideally want to follow that with professional financial advice, too. Then, if annuities are your preferred choice, contact our no obligation annuity planning service to find out more, and see why they're returning to popularity.
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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