For example, the annuity market saw a slight increase in sales during the first Covid-19 lockdown. This was the first time some people knowingly experienced some market volatility combined with a big change in day-to-day life – factors that were sighted as some of the reasons behind that particular increase.
Some people wish to receive their retirement income much like they did their salary during working life. An annuity can do that, it enables people to know how much they will be paid and when.
Sandringham's Grey says: "In the right hands, the benefits are worth every penny. As planners we need to be both empathetic and subjective at the same time. The figures on the page might tell us one thing is better, but the client’s reaction to that solution might tell quite a different story.
"We know from advice market studies that clients value things like confidence and peace of mind very highly."
Grey adds: “I think we need to position annuities with the correct language. No doubt they have been a bit too easily dismissed in some quarters. I think it’s our job to show the client the guaranteed income they could have, and what it might cost.
"That might mean doing more quotes on a benefit-led basis – that is, what’s the cost of £1,500 per month for life? I think that immediately changes the focus to the benefit of the product, and leads into a series of points about risk transfer from the client/adviser to the life company.”
While annuities are often thought of as simple products to set up, certainty of income comes at the cost of flexibility and many of the decisions made at outset cannot be changed later on.
This is why, according to Fiona Tait, technical director at Intelligent Pensions, it is essential to consider all the options that are available and match them as closely as possible to their individual requirements.
As Tait explains further, the key choices are:
- Lifetime or temporary annuity.
- Level or increasing income, either index-linked or more commonly a fixed percentage.
- Spouse pension or guaranteed period/value protection.
She adds: “Some clients are only looking for a ‘bridge’ between the time they retire and when their state pension kicks in, and a temporary annuity may be perfect for them.
“Many have spouses with little to no pension of their own and a spouse’s pension is essential; alternatively, they may have family who don’t qualify as dependents and consequently prefer a longer guaranteed payment period or value protection. There is no one-size fits all.”
Annuities can be used to secure basic income needs, to cover basic living costs or used throughout people's retirement in conjunction with drawdown.
