Steve Hunt: Annuities in a changing world
OVER the next two months I will be talking to you some more about annuities.
OVER the next two months I will be talking to you some more about annuities.Together, we will look at their history, their value and how, in this modern ever-changing world of retirement and the financial climate that we are living in, there is a demand for a far wider choice of products for the individual facing retirement to allow them to gain the best possible income available. An income not only for them as they live through their retirement years, but also to give the security of an income to their dependents.
In June this year I will be celebrating 30 years in the pensions industry. Back then it was the envy of the world; how things have changed!
Now, the thought of taking out a mortgage back in 1980 which, to present day I could not have changed in any way, is quite ridiculous. I doubt there is a single person in the country that has the same mortgage, on the same terms and on the same property they bought 30 years ago, because circumstances change.
So why on earth does a healthy 55-year-old woman, who, according to the government actuary is going to live for a further 28.7 years (so probably a lot more) buy an annuity?
The concept of an annuity has not changed in many, many years; but today's mortality is unprecedented in history. An annuity was never designed to be paid over 30 years, or even 20 years for that matter.
What worries me a great deal is the number of people who are going to be living in poverty in 10 years' time, because they have bought an annuity. Or the number of widows forced into poverty, because their husband had bought a single-life annuity?
Inflation may not be a problem now and who knows when it will return, but return it will, that is a given. The vast majority of annuity sales are level (and a great many single life). At just 3 per cent inflation an annuity paying 500 a month in 10 years will reduce to 370 a month and at 5 per cent inflation just over 300 a month.
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Thursday 18 March 2010
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