The death of annuities has been greatly exaggerated
01 Apr 2016
Consumers owning defined contribution pensions cashing in their pension pots to buy themselves a Lamborghini was probably the most striking scenario envisioned after the new pension freedoms came into force in 2015. But contrary to this vision, consumers have shown themselves to be far more responsible and rationale with their money.
After an initial burst of taking cash from pension pots, the tendency to cash-in pension plans has declined recently according to data from the Association of British Insurers and the Financial Conduct Authority and annuities are starting to stage a comeback as pension holders show a preference for a guaranteed or fairly stable and secure income over immediate cash in their pockets. Of course, it is still early days and the outcome of the new freedom will not be known for many years but if current trends continue there will be an increased need in the future for consumers to get advice on how best to maximise their incomes in retirement. While traditional annuities will not immediately die, they are likely to morph into new flexible alternatives, alongside income drawdown with consumers needing guidance on what product and options are best for them.