The future of Annuities
What job are annuities going to play in pension planning when retirement freedoms start from 6 April 2015? There is much discussion regarding annuities, especially after Chancellor George Osborne declared numerous alterations to pensions from April 2015, something welcomed by Standard Life within a recently issued bulletin.
These alterations suggest pensions are getting more adaptable, with savers receiving the ability to control the funds they’ve saved over the years – after all it is their money! They are able to obtain those funds whenever they decide to after age 55. This suggests individuals will now have more options than only purchasing an annuity when retiring, as was the scenario for many people in the past.
Standard Life feel that it doesn’t suggest this is the end of annuities. Whilst you can’t make any changes when you purchase one they have the benefit of giving the safety and certainty of the guaranteed income for a lifetime, or a time period that you choose. Furthermore, as annuities perform like insurance, should you suffer significant medical issues you’ll gain from improved rates. On top there is the extra appeal that certain annuities assure an income for your husband or wife also, in the case of your passing.
However, they don’t offer much flexibility. What happens if you required a single payment to fund a critical event, a replacement car, or wished to assist in paying for one of the grandchildren to attend higher education? Because of this, along with the pension changes now offering savers additional alternatives, we’re expecting to see annuities being an element of an increasingly diverse pensions mix, together with single payment withdrawals and versatile income, or what is called drawdown.
So using part of one’s pension fund to purchase an annuity will give a certain guaranteed income and reassurance that life’s necessities are taken care of. The remainder of the funds may be kept in a pension and remain invested to produce a flexible income and lump sum distributions when you require them.
Another pattern we might see appearing is savers holding their options open for a longer time by selecting flexible income and purchasing an annuity later in life when they’ll obtain a improved annuity rate – plus the peace of mind a guaranteed income brings. The approach we take to towards our retirement planning will probably not be quite the same and taking into consideration individual scenarios and needs hasn’t ever been more critical!