But she admits there are some flaws with these types of income for life products, which require people to make a decision at the start of their retirement about what they may or may not need later on in their life.
“The most popular age for annuity purchase is still age 65, which means some annuitants could expect to spend 30 years or more in retirement, during which period their income needs are likely to change considerably,” Ms Tait says.
Jinesh Patel, vice-president of investment consulting at Redington, agrees there are drawbacks to annuities now that people are living for longer.
“First of all, they are inflexible and tend to take a rather crude one-size-fits-all approach,” he explains.
“This wouldn’t suit those looking to phase their retirement, for example by slowly reducing number of days worked.”
He adds: “Similarly, it doesn’t take into account the different stages of retirement – those who are newly retired are likely to be more active, and possibly even have dependents and will therefore have greater need of income, while older ones might be able to manage on a lower income.
“It also fails to recognise potential social care costs, which may become a factor in late-stage retirement.”
Ms Tait believes this will mean annuity providers – those that are left in the market – will have to keep up with the changing needs of retirees at various stages of their retirement.
“We are therefore likely to see continued product developments which allow annuities to be more flexible and tailored towards particular consumer groups, although it is important to realise that these options are likely to come at an increased cost,” she suggests.
There have been some changes in how people use annuities which helps get around this problem, with many opting for a ‘blend’ of income drawdown and an annuity, or simply taking out an annuity later in life, at around the age of 80, for example.
So guaranteed income for life products also work well in conjunction with other retirement income provision options, adding yet another string to their bow.
“The new hybrid solutions which hold an annuity within a drawdown wrapper get around that problem,” explains Intelligent Pensions’ head of pathways Andrew Tully.
“The customer can choose each month how much of their income to withdraw and how much to leave to build up in the drawdown pot for use at a later date. Or, in other words, a fully flexible annuity income which allows you to help your clients with tax planning and to vary income to meet their changing needs.
