"Having spent most of the past ten years trying to revolutionise the way people buy retirement income, the irony of seeing a giant like this disappear from the market is striking."
In fact, along with its innovative Fixed Term Annuity plan, Living Time went as far as starting what would become an award-winning and influential ‘Offer More Options’ campaign with a stated manifesto aim of achieving greater freedom and better financial outcomes for consumers in retirement.
A decade on, and I would hardly have dreamed possible the extent of the pension freedoms now enjoyed by today’s retirees. The lifetime annuity market was in desperate need of reform – what we’ve had is nothing short of an evisceration.
The latest evidence of this comes with the news that Prudential is to pull out of the lifetime annuity market. This is of particular poignancy to me as I founded Prudential Annuities and worked there for many years before setting out to build my own business. Having spent most of the past ten years trying to revolutionise the way people buy retirement income, the irony of seeing a giant like this disappear from the market is striking.
For at the very point when retirees have been given more pension flexibility than they can shake a stick at, their options are actually narrowing as the likes of Prudential – and other lifetime annuity providers – pull out of the ‘open market’ or withdraw from offering lifetime annuities altogether.
Retirement planning has always been a complex affair, arguably even more so since pension freedoms arrived to allow clients to do as they please with their pension fund: buy an income, cash it in (in whole or in part), gift it to the kids... I can’t tell you how pleased I am that people no longer have to buy a lifetime annuity when they retire. This is because retirement is, as the saying goes, a game of two halves. Typically, at the age of 65 we will live for around 20 years with the first half in generally good health and the second half with some form of disabling illness or health condition.
It is during this second half of retirement when a lifetime annuity becomes more appropriate to fulfill its primary function of acting as an insurance policy. When you reach a stage in retirement that you may die in the next five to ten years or so, the financial implications of outliving your pension pot if you live 15 years, say, can be devastating. Lifetime annuities bought at older ages do provide valuable security and higher levels of income with a guarantee that your money won’t run out.
Today’s retirees are potentially caught between the proverbial devil and the deep blue sea. On the one hand, ongoing low levels of returns from conventional lifetime annuities (and a smaller number of providers to choose from with an ever-shrinking ‘open market’ of competition) and on the other an uncertain investment market that could see some clients taking ever-greater risks with their pension funds in order to generate the income yield they require.
One of the central tenets of our ‘OMO’ campaign manifesto was the importance of advice and independent financial advisers in the retirement planning process. We saw it as crucial to better financial outcomes for retirees. That message is more relevant today than it has ever been. Clients have more options than they had before and some they may be unaware of, including fixed term drawdown options alongside flexi-access drawdown and conventional annuities.
Of course, all the pension freedoms in the world can’t give retirees the one thing that many of them need most of all: more pension savings. The average pension ‘pot’ is still far short of that required to deliver the retirement many people dream of. It’s crucial therefore that people consider their first retirement income step carefully. They may be less likely than they were 10 years ago to ‘sleepwalk’ into a sub-optimal lifetime annuity, but with some options narrowing and others opening up the danger of ongoing investment risk or unexpected tax bills, expert advice is key.
It’s vital that the industry continues to innovate and bring new retirement income options to client, options that take advantage of the new rules to give clients the flexibility and security they will need during a challenging phase of their life. And we must not lose sight of the ongoing need clients have for guidance and advice on the myriad choices set before them. Pension freedoms have taken off the shackles but clients could still lock themselves into a poor financial outcome even as they metaphorically leap over the pension ‘wall’ and make a dash for cash.
Under our new brand of Primetime Retirement, we continue to ‘offer more options’ with our fixed term drawdown innovation. At Prudential Annuities, I wanted to help clients achieve the best possible lifetime annuity. Today, I want to help clients enjoy a best possible retirement. Full stop.
