Following the recent budget announcements on more flexible retirement options for those drawing pension benefits the annuity sales figures have declined dramatically. People may defer a decision on how they take their retirement benefits until the legislation changes for April 2015 are clarified.

Prior to the announcement, the majority of people, circa 75%, who reached retirement with defined contribution pension savings, used them to purchase an annuity.

The case for annuities?

So are annuities dead following George Osborne’s budget? Probably not. It is understandable that individuals considering their retirement options now may defer until they have a better understanding of the reforms proposed for April 2015. A common sense approach.

However, annuities still have a major role to play. They are a form of guaranteed retirement income that is difficult to replace for a cautious retiree who does not want investment risk.

Consider the following:

An estimated 80% of individuals buying an annuity would benefit from shopping around – the open market option. Source: FCA thematic review of annuities February 2014.

Circa 60% of people buy their annuity from their existing pension provider.

Enhanced annuities could offer better terms to over half of those who buy an annuity.

The cost of delay. If your annuity purchase fund could buy you an annuity income of £3,000 per annum now or £3,200 in a year, in simple terms it would take you 15 years before you break-even with the amount of income paid out should you wait a year.

Whilst these are just a few points I think that annuities are worthy of consideration for the majority of people. They may just be a part of your retirement income solution, the element that you want guaranteed?

Would you be able to achieve enhanced annuity terms? Please contact us to discuss all of your retirement options in full.

Steve Speed