It has been well documented that, since the EU referendum result, annuity rates have dropped across the market. Clients may be wondering what effect falling rates could have on their future income, and what – if anything – they can do to reduce the impact.
In light of the Brexit result, clients may be asking: should I purchase my annuity before rates fall any further, or should I delay in the hope that rates improve enough for me to secure a larger income?
Do they need a secure income now?
Firstly, it is important to remember that an annuity is still the only way to secure a guaranteed income in retirement.
From the age of 55, clients can use all or part of their pension pot/s to purchase an income at a fixed rate, which will be paid to them for life. With an annuity, clients can enjoy peace of mind that their agreed income will continue no matter what happens to rates in the future.
Despite market speculation and predictions, nobody can tell what is going to happen to rates in the future. What we can establish however, is if the client needs their income to start now or in the near future, and if it will be their main source of income.
Whatever happens to rates and the volatile stock market, sometimes the ‘right’ time to buy an annuity is simply when a person needs that guaranteed income.
The cost of delay
When discussing options with a client it is also vital to ensure they fully understand the cost of delay. While waiting for rates to improve to secure a larger annual income, the client could risk missing out on money that could take over a decade to recoup if they delay purchasing their annuity.
Given rates may continue to fall as a result of the Brexit result, some experts have suggested that anyone needing to purchase a lifetime annuity should consider doing so now, rather than risk lower rates impacting further on their fund.
Finding competitive rates
Finding out what income for life they could expect if they purchase an annuity could be a helpful first step.
When you refer your clients to Retirement Line, we will search the market to find the most competitive rates for their income for life. We will also establish if the client qualifies for improved rates due to poor health and thus helping to secure a bigger retirement income for life.
Clients do not have to be seriously ill for them to qualify for enhanced terms. By gathering basic details including their weight, height alcohol intake and smoking history (if applicable), we could get your client a much better deal on their retirement income.
Not wanting to commit now to an annuity for life?
For clients who do not need the certainty of a guaranteed retirement income just yet, or do not wish to commit to a rate for life right now, perhaps due to the current historically low annuity rates on offer, a fixed-term annuity may be a good alternative.
After taking their tax-free cash, clients can choose the income they need over their desired term (of between one and twenty-five years). The less income they choose, the greater their guaranteed maturity amount at the end of the term.
After this term has ended the client can review the rate situation and perhaps purchase an annuity with their guaranteed maturity amount, having avoided any investment risk in the meantime.
Interest and gilt rates and thus annuity rates may have recovered at that time (although they may have fallen further as well) whilst any deterioration in health could qualify for a potentially higher enhanced annuity.
A fixed-term annuity also allows people who do not need any income now to access just the tax-free portion of their pension pot while they deliberate their longer-term options. This provides a larger guaranteed maturity amount to use as they wish under the new reforms.
Ongoing market volatility
The recent volatility in the stock market following the referendum has raised questions about the aptitude of flexi-access drawdown, which normally opens pension funds up to investment risk.
For clients who may now want more security, avoidance of investment risk and who but don’t want to commit to a lifetime annuity, a fixed term annuity may provide a viable option.
Refer your clients today
When you refer your annuity clients to Retirement Line you can rest assured they will be in the best of hands. Due to our position within the industry we have access to some of the most competitive rates on the market – meaning a bigger income for life for your clients.
Once each of your referred cases completes, we will pay your introducer fee directly to you. Call 0800 1444 777 to refer your clients or ask our team any questions, or click to refer your clients here.