Record low annuity rates is increasing demand for temporary annuities, according to Gallagher Employee Benefits. Life annuities are becoming less attractive to retirees as the amount of income one can get has fallen sharply over the past few years. According to financial journalist Jeff Prestridge, those buying an annuity now are 25% worse off than those who bought one just three years ago. Some of those approaching retirement have also seen their pension funds shrink due to poor performance on the stock market. This has created a double whammy affect of a smaller fund coupled with lower annuity rates. Hardly surprising then that many are turning away from locking themselves into a life annuity now and are looking at viable alternatives. A fixed term annuity is bought for a set period generally 5 or 10 years (minimum 3 years) and has a guaranteed maturity payout at the end. It allows retirees to potentially benefit from possible higher rates in the future and/or any health conditions that would make them eligible for enhancements.
Stuart Grennan from Gallagher Employee Benefits reported both an increase in those asking and also taking out fixed term annuities. Mr Grennan said…”…we believe that the take up of temporary annuities will continue well into 2012 and perhaps beyond, as we think it unlikely that annuity rates will rise anytime soon, as gilt values are likely to remain low given the current austerity measures and fall out from the eurozone.” He added that the impact of Solvency II legislation would further decrease the likelihood that annuity rates would rise.
The popularity of fixed term annuities is certainly one reason why sales at Just Retirement have hit an all time high, as reported earlier this week. Just Retirement’s CEO Rodney Cook commented that the rise in profits for the company was in part due to the success of their own pioneering fixed term annuity product. He said that…”‘…our innovative fixed term annuity product the first in the UK with an enhanced annuity conversion feature, has achieved pleasing results as advisers look for alternatives to standard annuities for those customers in good health.” However they are not universally popular as this week L&G’s executive director for protection and annuities John Pollock said that fixed term annuities were…”…not a good product for consumers. They place quite a large bet on markets and longevity in a manner that is uncertain.” He added that the company had voiced concerns about this to the FSA.