Advisers are increasingly concerned about locking clients into currently low conventional annuity rates – but nearly three in five (58%) are predicting improved rates in the next five years, according to new research1 from innovative retirement income specialist, Primetime Retirement.
Primetime Retirement’s research among 447 retirement specialist IFAs shows nearly 82% of advisers are worried about clients locking-in to low lifetime annuity rates and are looking for alternatives while another 5% are concerned but don’t believe there are other options.
The immediate future looks bleak - four in five (79%) do not believe that conventional annuity rates will rise over the next year but this drops to less than a quarter (24%) when looking at the next five years.
The research by Primetime Retirement also shows that 91% of IFAs believe that the Bank of England base rate will rise over the next five years and thus signalling a rise in annuity rates.
Primetime Retirement CEO Kim Lerche-Thomsen said: “We are currently seeing low annuity rates which are causing IFAs to search out alternative annuities but it is encouraging to see that over the next five years, rates should improve.
“Today we see flexibility in all other financial services sectors, so why not for retirement income products? Despite people living much longer, a person’s health and family circumstances are unpredictable. Fixed term annuities allow those in retirement to determine which type of annuity suits them best in individual five to six year stages throughout the latter part of their life.”
Previous research conducted by Primetime Retirement research showed how more than three quarters (77%) of specialist retirement income advisers expect the fixed term annuity market to grow in the next two years2.
The average LTA rate offered by the top five providers for a male aged 65 investing £100,000 (with a five year guarantee) is currently £5,474 per annum whereas the maximum GAD income for the same client and investment is £5,500 per annum. Matching the income from the average of the top five LTA providers with a Primetime Retirement Plan over six years would give the client a maturity lump sum of £78,616.3
Primetime Retirement, which pioneered the fixed-term annuity in the UK as Living Time, believes the research highlights the income gap facing many people in retirement - and the need for increased flexibility and innovation in retirement income solutions. Primetime Retirement has seen strong demand from IFAs and clients as low annuity rates drive interest in alternatives to conventional annuities including fixed-term annuities.
Kim Lerche-Thomsen concludes: “Currently there is a serious reality gap between the incomes people believe they will have in retirement and the incomes they actually achieve. Retirement income solutions have to adapt to the new reality and current solutions will not be suitable for all. Those who are in good health and still working want to keep their options open in retirement and need retirement income solutions which are flexible enough to adapt.”
The Primetime Retirement Plan is a deposit-based investment which offers advisers and clients a combination of a fixed income for either five or six years which is not affected by age or gender; and a Protected Maturity Amount at the end of the term which they can use to purchase another appropriate pension product. It also offers Value Protection Plus death benefit, a valuable lump sum benefit for those looking to pass on as much of their fund as possible should they die prematurely.
For those clients looking to boost the potential purchasing power of their maturity fund, Primetime Retirement also offers a variety of investment upside alternatives to their core plan, using a Structured Deposit that links an additional maturity lump sum to the performance of the FTSE 100 Share Index. Clients can choose among the Accumulation+ plan aimed at those who are still saving for retirement; the Capital+ Plan for those seeking income and potentially higher growth; and Income+ for those looking for higher income.
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