Jonathan Watts-Lay, Director, WEALTH at work answers some key questions on annuities in light of the recent uplift in the rates available.
Q: Is it time for annuities to make a comeback as annuity rates are the highest they have been for 8 years?
A: Annuities certainly have fallen out of favour in recent years, mainly due to the rise of income drawdown which is appealing to those wanting more flexible access to their retirement income, and as a result of low annuity rates.
However, with annuity rates on the rise, those who are looking for more security may be tempted to explore the option of an annuity. This could be particularly true for those concerned about the impact of the cost of living crisis, as an annuity provides a guaranteed income, and can be indexed linked.
Q: Is it time to revamp employee communications to consider annuities again?
A: It’s important that employees understand all of their income options at retirement and which might be the best for them, in order to be able to make an informed choice; whether that be an annuity or other options like income drawdown, cash withdrawal or a combination of options. As individual circumstances change, it may not even be as straightforward as picking only one option and a pick and mix approach may be best. For example, for those who want the security of an annuity whilst still wanting some flexibility, they may want to consider using some of their pension savings to purchase an annuity that meets their core needs, while keeping the remainder invested to do with what they wish.
Financial education and guidance could be the best way to help employees understand the advantages and disadvantages of each option, some may even need regulated financial advice with help deciding what is right for them.