Therefore, although I agree that it is important that risk averse investors should consider annuities they should also be told about the historically low annuity rates. Especially in the context that in 2017 it is likely that yields will rise if as expected, inflation will increase in the UK following the Brexit decision.
Again, keep it simple; there are three key decisions before an annuity purchased:
When is the right time to take income?
What is the most suitable option?
Which company is offering the best deal?
In my analysis, shopping around for the best annuity is the last step, but some firms promote this as the first step.
Without doubt, it is only right and proper that the FCA, and the industry does all it can to promote and increase awareness of the open market option. However, it is also important that more is done to make sure that people know what they are shopping for in the first place.
Annuities will continue to play an important part in retirement income planning but there must be more sophisticated approach as to how annuities are explained and used.
Billy Burrows is director of Retirement Intelligence
Key Points
George Osborne's 2014 speech on pension freedoms took a lot of hot air out of annuities
The FCA recommended a retirement income 'comparator'
The Open Mark Option should be the last thing people look at, not the first when selecting an annuity
