Hasty Annuitants may repent at leisure
This press release was issued in October 2009 and represented Living Time's view at that time. This article is recreated here to provide a review of past commentary and may not represent current ideas.
Calls for individuals nearing retirement to buy lifetime annuities quickly before rates fall may nudge retirees into a decision they regret for the rest of their lives, says Living Time.
“Stock markets have bounced back in recent months and life insurers have recently reduced annuity rates,” said Dave Harris, Living Time’s managing director of sales and marketing. “But there are some equally compelling reasons why, while it may appropriate to reduce the investment risk in one's portfolio, it may be a poor time to lock in to a lifetime annuity that every retiree ought to consider.
“Yes, quantitative easing (QE) is probably depressing interest rates – but what happens when it ends? The Bank of England is supposedly using QE to stave off deflation and if it succeeds it will have to switch back to controlling inflation to help those living on fixed incomes.”
“If – some would say when – interest rates do start rising again, this should push up gilt yields and allow annuity rates to improve.
“Nobody knows where annuity rates or inflation are heading over two or three decades, the kind of timescale retirees must try to cover. We don’t think the uncertainty of 2009 is a good time to bet a whole pension fund on a lifetime annuity – people should be looking to optimally phase their purchase over several years, taking advantage of the fact that lifetime annuities may look far better value with greater age and especially if ones health deteriorates.
“Whilst the macroeconomic environment creates positive and negative forces impacting annuity rates, often a more significant force impacting the income levels an individual customer is entitled to is what changes in that customer’s life. A significant proportion of customers who are healthy at age 65, will suffer worsening health by the time they reach the age of 75. Those that do, could see their levels of income inflate by up to 75% at age 75 compared to the income they were offered at age 65 when they were classified as a healthy life,”
“Customers can ‘test drive their retirement’, meeting their income needs now from alternative retirement income products available within the market and defer making their final choice up until as late as age 75, when it’s very likely the macroeconomic cycle will have changed and potentially as will the customer's personal circumstances”
“A fixed-term annuity is a modern approach to retirement planning, providing a guaranteed and competitive income now for a portion or an entire pension fund with no investment performance risk. It allows people to keep their options open to respond to the uncertainties of the future.”
Ends
Posted by: Stuart Wilson
Post date: Thursday October 22, 2009 @ 08:18
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Alico is the insurance company that provides Living Time Plans.
Living Time Limited is an appointed representative of American Life Insurance Company (Alico). Living Time Limited is registered in England with company number 04750947 and has its registered office at 1 Conduit Street, London W1S 2XA. American Life Insurance Company is a private limited company incorporated with limited liability in Delaware, USA number 0123730. Head Office: One Alico Plaza, Wilmington, Delaware, USA 19801. Branch Office: 22 Addiscombe Road, Croydon CR9 5AZ. Registered in England number BR000230. Authorised and regulated by the Financial Services Authority (FSA reference number 139417).