Should we learn to love annuities?
Do we understand enough about annuities to love them? Do we understand how important an annuity is in the context of the job it does? As Jane Austen wrote in Sense and Sensibility in 1811: “An annuity is a very serious business; it comes over and over every year, and there is no getting rid of it.”
Over half of Britons would be worried about financing their retirement if they were to live for 10 years longer than today’s average life span of 82 years, according to research released by Life Trust. People are living longer than ever before. A person aged 50 today has a one-in-two chance of reaching 90 and a one-in-10 chance of reaching 100.
This adds more pressure to existing concerns for many about their finances. Four in 10 people questioned for the research said that they were worried about financing their retirement if they were to live for the average life span.
Pensions continue to be the most advantageous way of financing retirement from a tax perspective, but lots of people avoid them because you have to buy an annuity. Paying all your retirement fund to an insurance company for what often seems a disappointingly low level of income (which disappears when you die) can seem unattractive.
But increasing longevity arguably makes annuities more attractive. For anyone worried about the significant risk of living to 100, an annuity, particularly an index-linked annuity that rises with inflation, is probably the most attractive solution available. It provides a guaranteed income for the rest of your life and it takes away the worry associated with looking after your money and investments.
