The Case for Annuities
The case for annuities can be made very simply; they are the only policy that pays a high level of guaranteed income for the rest of your life. In this sense an annuity is a pension, and in the rush to introduce pension freedoms it is easy to lose sight of why you probably saved for a pension in the first place.
Annuity rates may be low at the moment but they are the only way of guaranteeing a regular income for the rest of your life with peace of mind and security no matter how long you live.
Is it a good time to purchase an annuity?
“Is now a good time to purchase an annuity”?
The thinking was that now fund values have increased since the March 2020 crash it might make sense for some people, especially those with relatively small drawdown pots, to purchase an annuity.
I understand from several annuity providers that annuity sales have increased significantly so it will be helpful to see if there is a case for purchasing annuities at the moment.
Engage with advice
I want to help people make the right decisions at retirement but it seems many people don’t want to help themselves by properly engaging with advisers.
In the old days (whenever that was), people were more open to taking advice and more trusting of experts but nowadays many people have a closed mind to advice and don’t necessarily trust advisers. This has not happened overnight but has crept us on us over the years, but the lack of engagement has been accelerated by events such as RDR which created the so-called advice gap and by changing attitudes and customer behaviour.
The big picture – There is an advice gap and some people think the answer is robo advice
What's the problem? – Just like the exams, robo advice relies on algorithms but these can disadvantage those who are less well off
What can de done? – Looks at ways to get real people involved with the advice process.
Ali Hussain wrote a very good article in the Times newspaper on Saturday 18th July in which he highlighted the commissions paid on non-advised annuity sales
I helped Ali with this article by providing some annuity quotes and giving some comments.
The article explained how although financial advisers were banned from being paid commission in 2013, the ban did not apply to brokers who sell annuities and some types of pension drawdown without giving advice.
Fixed Term sales
The big picture – Fixed term income plans are popular because they don't lock people in for life.
What's the problem? – Lifetime annuities have a poor reputation because of miss-selling. Could fixed term suffer the same fate?
What can de done? – Make sure they are sold / advised properly e.g. end commission bias.
I once had a client who said: “Give me a one-handed adviser”. He went on to explain that I kept on saying ‘on the one hand this and other hand that’, but he just wanted the answer.
I understood his frustration but as soon as I explained there was not one right answer and it was important to consider both sides of the argument he was happy with my two-handed approach.
Advice in the workplace
When presenting to trustees I always know when I have got their attention because I get a strange look when I ask; “Do you want your members to a second-class service”?
I go on to explain that if people contact me for help as they approach retirment because they may have seen my name in the papers on heard me on the radio ask one of the team will give them a personal service. This involves explaining all of their options and an offer to tailor our advice to their individual circumstances.
Fixed Term Plans
Historically, the only way to convert a pension fund into income was by purchasing a lifetime annuity or investing in pension drawdown. One is totally secure but inflexible, the other completely flexible but has a number of risks.
Then in 2007 the first fixed term annuity or fixed term income plan in 2007 was launched.