Nick Flynn, Retirement Income Director, Canada Life, comments: “Annuities have made quite a comeback this year, with guaranteed lifetime income back in vogue following the strong improvement in rates. This has largely been driven by the positive shift in yields available on gilts, while competitors have also vied for market position.
“Annuities can play a vital role in any holistic retirement plan and yet many preconceptions continue to reinforce the misunderstanding around annuities. From the positives of longer guarantee periods, to 100% value protection, or the benefits of disclosure providing enhanced rates, annuities are worth more than a cursory second glance.”
A look at how annuity rates have performed in 2022
Source: Canada Life benchmark annuity rates as at 30/11/2022. £100,000 purchase price, healthy single life with 10-year guarantee. Reference 15-year Gilt yields taken from FT.com
The value of income guarantees
Source: Canada Life benchmark annuity rates from 02/01/2022 and 30/11/2022, showing the guaranteed element of the annuity as total income. £100,000 purchase price, healthy single life with 10-year, 20-year and 30-year guarantees.
10yrs 2.1.22 £4,479pa, 30.11.22 £6,508pa / 20 yrs 2.1.22 £4,305pa, 30.11.22 £6,288pa / 30 yrs 2.1.22 £3,914pa, 30.11.22 £5,897pa
Nick Flynn concludes: “For clients seeking income security in retirement, annuities can play a key role in retirement planning. It will always pay to shop around for not only the best rate, but also the right shape and type of annuity. Purchasing an annuity is a significant financial step and it is the role of advisers to help their clients understand the choices available and select the right annuity for a customers’ individual needs.”
Some pros and cons of buying an annuity
Pros
100% secure lifetime income, not linked to the stock market
Your health and lifestyle could significantly improve the rate you are offered, so always disclose these to your adviser, annuity broker or annuity provider
You can combine annuities and drawdown, it doesn’t need be an ‘either / or’ decision
Cons
If you die ‘early’, your estate may not get your money back, unless you have the right protection in place
Your income will be fixed and offer no flexibility, unless you opt for some form of inflation linked escalation which can be expensive
Don’t accept the offer from your existing pension company, always shop around the open market for the best shape and rate
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