My own view is well known. Retirement does not have to be black or white, and many more people could benefit from a combination of annuities and drawdown. The new hybrid plans and blended solutions make this approach easier.
Finally, advisers (and those annuities without advice) must take some of the technical issues into account, not least when is the best time to purchase an annuity. In simple terms, the benefit from the mortality cross-subsidy is now very small at younger retirement ages but increases with age. This suggests that the optimum time to purchase an annuity is nearer the age of 70 than 60.
In conclusion, low interest rates are clearly not good for annuities, but this does not mean annuities do not have an important role to play in retirement income planning. Jane Austen is still right when she wrote: “An annuity is a very serious business; it comes over and over every year, and there is no getting rid of it”.
Billy Burrows is director of Retirement Intelligence
| Key Points: |
In the last week in June, annuity rates from all the top providers fell by between 2 per cent and 3 per cent. The problem with annuities is not the concept of annuities but the underlying interest rates. An annuity provides the ‘optimum distribution of income’. |
