An annuity is a very serious business
Jane Austen wrote “An annuity is a very serious business” in Sense and Sensibility.
We do see a role for annuities in the provision of income in retirement and our insight from the customers that we speak to is that so do they provided you describe it as “an income for life” and not a “hateful annuity”. Whether it is helping people buy the right annuity or plan for their retirement income, the biggest job to do is for the market to support customers so that they have the knowledge and confidence to be consumers of financial products.
We believe that just because you can do something (cash in your pension fund), it does not mean that you should. Our customers value certainty and “an income paid for the rest of your life” is a very attractive concept for some.
Of course, an annuity is a very serious business because it is a binding decision. It is really important that customers (a) understand the different annuity options available and (b) know how to shop around.
I listened to a call between a senior executive of a large company and Jas, one of our technical specialists. She had used an annuity comparison tool but had realised that the decisions that she was making was “a very serious business” and hence she called us to talk it through. This lady came across as being very financially capable but she was struggling with the choices and the decision. Luckily, she knew enough to know what she did not know.
The interim report by the Financial Conduct Authority on Retirement Outcomes showed an increase in non-advised business and very limited shopping around. The research behind this interim report broadly reflects our experience of how people have acted on the pension freedoms. These people have been using the new legislation as an opportunity to sort out small Defined Contribution pots, which were not a major part of their retirement income. In the near future, the Defined Contribution pot will be a significant part of many people’s retirement income. I overheard a Pension Wise appointment that Andy was handling. He tells me that this was with a 70 year old gentleman who was so grateful for the opportunity to talk through his plans with someone before acting.
The senior executive and the 70 year old gentlemen both knew enough that they wanted to check their understanding before making a decision. We need to help more people make decisions with “sense and sensibility”.
If you’d like to talk to us about annuities or you have a question about your pension position please contact us on 0300 123 1047(Mon - Fri 9-5, excluding bank holidays).