On 18th January 2022, the Work and Pensions Committee published their wide-ranging report, following their inquiry, entitled “Protecting pension savers—five years on from Pension Freedoms: Accessing pension savings”, the full report can be found here.
Amongst the committee's multiple recommendations, was a call for action to help increase the number of people selecting a blend of retirement products.
We recommend that the Money and Pensions Service and the Financial Conduct Authority should develop proposals to increase the number of people choosing a mix of retirement products—including cash, drawdown and deferred annuities—to meet their changing needs at different stages of later life. (Paragraph 35)
Retirement Line are especially pleased to see this recommendation being made. We have long supported this approach. It is important to recognise that everyone's retirement needs will be slightly different and can change over time. With this in mind, we feel that using a mix of pension income options, rather than putting all your pensions eggs in one basket, may provide more desirable outcomes for many people throughout retirement. As part of this mix of pension income products, the majority of people will likely desire a secure guaranteed level of income at one stage or another, providing pension income peace of mind.
1. Using a combination of state pension and annuity to cover essential household bills. After these are covered, any excess could be invested in a drawdown offering providing flexibility and investment exposure.
Retirement Line believe the PLSA’s Retirement Living Standards could be used as a helpful guide for many people approaching retirement. For a single person, the current minimum Retirement Living Standard is set at £10,900 a year*. For those receiving the full state pension of £9,339, this leaves a gap of £1,561 a year to reach the minimum level. (For more information about the PLSA’s retirement living standards please click here).
Based on current annuity rates**, an annual annuity income of £1,561 would cost approximately £30,000. However, many people, who are personally underwritten for health and lifestyle factors, could benefit from a lower purchase price by qualifying for an enhanced annuity (9 out of 10 of Retirement Line’s customers of lifetime annuities arranged in 2021, enjoyed enhanced terms).
By having covered essential household expenditure through a secure income (state pension and annuity), it may provide people with the opportunity to invest their remaining pension funds for potential growth. In the long term, more secure annuity income could be purchased for those no longer wishing to manage their drawdown investments or for those wishing to protect against potential longevity risk.
2. A target annuity purchase date within a drawdown journey.
For some people, the fixed nature of an annuity can become more appealing as time passes. Some reasons for this include:
If you are considering an annuity for all or part of your pension fund, our friendly annuity experts will be happy to help in any way they can on 01733 307202.
*Correct at time of writing - January 2022
** Based on annuity quotations from Retirement Line’s open market portal in February 2022
*** Based on conventional annuity rates using Retirement Lines portal 03/02/2022