Annuity delay, with higher UK pension annuity rates, will suit a few people of the right age. But it won’t appeal to many buyers of pension annuities. Intelligent Pensions has warned financial advisers not to lose sight of the fact that most of their clients will need to purchase a pension annuity by age 75 even if the Association of British Insurers’ (ABI) call to raise the maximum age for purchasing an annuity to 80 is realised. This comes on the back of the ABI’s recent call for the age for compulsory annuity purchase or conversion to alternatively secured pension (ASP) to be raised from age 75 to 80.
Intelligent Pensions director David Trenner says that he supports this stance but financial advisers must remember that if the age is pushed back to 80, it would only be suitable to delay annuity purchase for a small minority, even though higher UK annuity rates will be available to the older ages. He points out that within an annuity pool (actuary speak), those dying earlier subsidise the annuity incomes of those who live longer. He says Government Actuary’s Department (GAD) figures show mortality cross-subsidy is worth about 1% per year at age 60 but rises to around 4% per year at age 75.
David Trenner adds that for the vast majority of advisers’ clients, annuities should most likely be purchased before age 75. Treating customers fairly (TCF, FSA speak) means that we have to make sure that they (the clients) understand the value of a pension annuity. Further, he suggests that the ABI is right to push for an increase in the age limit to 80 but we must ensure that if the age limit is increased advisers do not lose sight of the fact that good sound financial advice means that the change will only affect a very small proportion of clients.
