Different types of pension annuity options
In 2007 premiums in the UK pension annuities market were over £11 billion, and this is expected to continue to grow. However, there is an increasing product choice in the at-retirement market, and this can be a challenge.
Advisers in this market need to have a solid understanding of the options available and how they suit the client’s needs. The exact shape of an annuity is necessary before the best annuity rate is sought.
Longevity warrants consideration. According to figures from the Office of National Statistics, a 65 year old woman will now live for 2.8 years longer than they would have in 1980, and a 65 year old man will now live for four years longer.
There is also the issue of inflation. According to research from HBOS, the rate of pensioner inflation has increased by 36% over the past ten years. Some annuity contracts can help in this regard. These include: with-profits annuities, unit-linked annuities, and flexible annuities.
Many are familiar with the long standing annuity products including conventional, unit-linked, with-profits and flexible annuities, but we now have range of new at-retirement products including income drawdown and variable annuities to consider.
The advantage of income drawdown is that clients can keep their pension fund invested for longer and so have the possibility of increasing potential returns. Potentially useful in today’s economic climate.
In 2008, the Association of British Insurers (ABI) estimated that 66% of people now consider the Open Market Option when choosing their annuity, so at least they are looking for options.
Forecasts suggest that the at-retirement market will grow to £18 billion a year by 2012. It’s safe to conclude that these figures will rise as awareness increases.
