Purchasing an Annuity was the only way forward.

As the pensions and annuity market has changed significantly over the last 30 years, you may find yourself with various schemes from different providers and employers.

Bringing them all together to give you cash and income in retirement may seem daunting.

Choosing the right way to provide income in retirement, whether through an annuity or other means, is one of the most important financial decisions you can make. The right choice can significantly affect the money you will have available at retirement.

Somebody once asked ‘Did the people going through the Industrial Revolution know they were going through it’- Well, do the people approaching retirement know they are going through a ‘Pensions Revolution’! They should!

Traditionally, the purchase of an annuity was commonplace, and you needed to consider:

  • If you wanted your annuity single
  • Or jointly incorporate a widow/widower’s pension.
  • If you wanted it inflation-proofed to combat the ravages of price increases over the years.
  • A guaranteed period
  • Proportionate payment on death

Government Changes

As a result of George Osborne’s announcement in 2015 that the “biggest reform in pensions since 1921” is taking place, the decision whether to choose an annuity as your form of income in retirement became more important now than ever.

The Financial Conduct Authority (FCA) recently did a review of the retirement income market and established the following:

  • The total number of pension plans accessed for the first time in 2023/24 increased by 19.7% to 885,455 compared to 2022/23 (739,652).
  • Sales of annuities saw the biggest increase, from 59,163 in 2022/23 to 82,061 in 2023/24 (38.7%).
  • Sales of drawdown increased by 27.9% from 218,183 in 2022/23 to 278,977 in 2023/24.
  • The overall value of money withdrawn from pension pots increased to £52,152m in 2023/24 from £43,233m in 2022/23, an increase of 20.6%.
  • Some 30.9% of pension plans accessed for the first time in 2023/24 were accessed by plan holders who took regulated advice (down from 32.9 % in 2022/23).
  • The number of DB to DC transfers continued to fall from 18,080 in 2022/23 to 7,181 in 2023/24.

 

Annuities traditionally convert a person’s pension savings into an income for the rest of their life, but falling interest rates and rising longevity have sent payouts to historic lows.

As a result, the Financial Conduct Authority instigated a review of the Annuity market. Their work established that some parts of the annuities market are not working well for some consumers.

They found that eight out of ten consumers who purchase their annuities from their existing providers could get a better deal on the open market.

Read why checking your workplace pension is important

Advice is needed

The new rules will allow people to withdraw all their funds as a lump sum instead of buying an annuity. While this can be a great idea sometimes, it may leave them with no competitive income options.

Taxation of income is a significant consideration these days, and with freedom of choice comes responsibility, and the fear is that people may opt for now rather than the future.

People often underestimate how long they will live and overestimate how long their pot will last. There is also a recognised problem with the lack of financial literacy in the UK.

The choices at retirement create choice, flexibility and the ability to make bespoke plans and to help the Government set up Pension Wise, via Moneyhelper in 2015, to offer impartial guidance to over 50s.

Although Pension Wise is a valuable service, it’s important to remember that it only provides guidance, and Independent advice is more important than ever.

Contact us today to discuss your retirement needs.