Still unloved: Annuities struggle to shake off their inflexible reputation

Annuity rates may have increased by almost 50 per cent in the past 18 months, but many over 50s are still eschewing them with the main reason being lack of flexibility and their perceived 'riskiness'.

Over two-fifths of the over 50s told a Canada Life survey annuities were "inflexible" and just under a half said annuities felt risky as an early death would result in losing their money.

The survey also found that nearly two-fifths neither agreed nor disagreed that annuities offered good value, and nearly a third were unsure if annuities offered flexibility.

Sold, not bought

Nick Flynn, retirement income director at Canada Life said annuities still tend to be sold, rather than bought. "This is exacerbated by the misconceptions that have built up around annuities as a product which has been out of fashion.  ut, they are worth more than a cursory second glance.

"From significantly improved rates, to longer guaranteed periods which effectively provide a money-back option, to retirement account annuities where your income can be switched on and off, there is so much more to explore with annuities than perhaps is seen at face value.

Annuities and inheritance 

Samuel Mather-Holgate, an independent financial adviser at Mather and Murray Financial Annuities, said the low interest rate environment of the last 15 years had put people off annuities.

"As that [interest rates] have increased we have seen a significant increase in demand for them. There will still be a lot of customers whose main concern in retirement isn't income level though. Those that want flexibility or a way of passing wealth to another generation will still be avoiding these income-producing products.

"Advisers and customers are, more so, looking at retirement through a prism of products that, together, form the best outcome for them. Annuities have an increasing part to play in this set up."

Mis-trust of life insurers and annuities

Philip Dragoumis, director and Owner at Thera Wealth Management, said he saw five reasons why annuities may struggle to be noticed.

"There is a strong desire to be able to access your savings and investments as a lump sum whenever you need and for whatever reason. Then there is the fear of dying at any time and not leaving a legacy to your loved ones and children.

"Thirdly a feeling that investments can offer similar returns without the need to give up capital. Fourth, a mistrust of life insurance companies and fifth, a lack of flexibility to switch your income on and off."

"For the wealthy, annuities continue to make little sense even at these interest rates. Why opt for an inflexible taxable income if you don't need it? For others with fewer resources available, a guaranteed lifetime income covering basic needs on top of the state pension may well be the right solution."

Interest rates and annuities

Luke Thompson, a director at PAB Wealth Management agreed that low interest rates had put people off annuities.

"However, there are other reasons why people approaching retirement have been wary of putting their funds into annuities. Many customers find them to be complex and withdrawal fees and surrender charges definitely play into this.

"In the last 15 years or so many people who are approaching retirement have enjoyed the control they have by leaving their funds in drawdown and taking funds as and when they need them."