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Post Info TOPIC: Is there still a case for annuities or are they are a thing of the past? asks a client


Billy

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Is there still a case for annuities or are they are a thing of the past? asks a client
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I am constantly being asked if the game is over for annuities - the answer is 'of course not'



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Billy

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The short answer is there is a still a case for annuities but it is not as strong as in the past and annuities may be used in different ways.

The long answer is that the case for annuitisation (converting a pension pot into lifetime income) is as strong as ever but annuity policies suffer from historically low long-term interest rates. An annuity for a 60 year old investing £100,000 would have paid over £ 5,000 per annum 5 years ago but today the same annuity only pays £4,000.

Despite low rates, annuities are still the only policy that can guarantee an income for life. The grass may look greener on the drawdown side of the fence but the flexibility and control of drawdown comes with significant risks.

In the future, retires will still purchase annuities but perhaps in conjunction with drawdown and as they get older.

See my article – Annuities are a hard act to beat



-- Edited by William Burrows on Saturday 16th of November 2019 11:17:36 AM

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Billy

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I should add the case for annuities is stronger at older ages. This is when the benefits from mortality cross subsidy become more pronounced



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