Innovation in the pension annuity market
In 2007 annuity sales were £11 billion and income drawdown sales were £3 billion. By 2010, the annuity market alone is estimated to be standing at over £18 billion. Changes are required in the advice process. It is not simply the case of buying a pension annuity…things are evolving.
Clearly there is work in progress as both the product innovators and the adviser community move to a position where they can fully tap into and assimilate the potential of new retirement options. But it is interesting that the research findings show 78% of advisers explore impaired life products on behalf of their clients and for enhanced annuities the figure is 69% with variable annuities at 50% and fixed-term annuities at 41%.
A worry in the current economic climate is inflation. What proportion of clients are using inflation protection for their annuities, such as RPI-linked annuities. The single biggest area, nearly 70% of advisers, is in the 0-25% range, with 22% of advisers identifying the proportion as within the 26%-50% range.
We are living longer and longevity trends together with the clients’ own health profile has to feature in the strategic plan for future needs.
It is certainly agreed by the majority that it is a question of educating and explaining to many clients that they cannot rely on the traditional cautious options of fixed interest, cash, and guaranteed annuities anymore.
This is about management of client expectations, about the resources needed to retire in both comfort and security, and greater willingness to use drawdown for those clients who are capable of being educated into making an informed judgement about the potential risks and rewards.
