Written by Ahmed Bawa, CEO of Rosemount Financial Solutions (IFA) Ltd
There was a time when annuities seemed to have permanently dropped out of favour among those in retirement. The introduction of the pension freedoms by the Coalition Government opened up new options for those in later life, giving them greater say over how the pension pot they had built up over their working life would be managed once they retired.
With annuities paying such low rates, the appeal of a consistent income for life was diminished – why commit to a product delivering a mediocre return, when you could keep your funds invested, dipping in whenever necessary? Little wonder then that the vast majority of retirees opted to make use of drawdown solutions, taking a more hands-on role in when they tapped into their pension pot.
Over the last couple of years, that balance has started to shift however. First and foremost the rates on annuities have improved dramatically, which has inevitably boosted their appeal among pension savers.
For example, analysis from Hargreaves Lansdown found that a 65-year-old with a £100,000 pension pot could now secure an annual income of £7,149 from an annuity, compared with £4,953 just a couple of years ago. In cash terms, that’s a significant jump, and one that will only be more notable as the pension pot increases in size, or in the case of enhanced annuities which tend to deliver more substantial rates.
It’s not just the interest rate improvements that have caught the eye of those in or approaching retirement, though. There’s also the economic situation, and the reality that with so much uncertainty around rising bills and the performance of the stock market that the ability to lock into a secure, reliable annual income until you pass away is far more enticing than it was just a few years back.
Addressing the advice gap
This changing landscape can present a challenge for advisers, however. The lack of interest in annuities – and indeed their lack of suitability for some clients – may mean that the adviser is somewhat detached from the sector.
This is particularly true for advisers who are relatively new to the industry, and so have never seen a time where there has been much demand for these products.
This potential knowledge gap is something that advisers must focus on addressing, however. The reality is that even with base rate having likely peaked, interest in annuities is likely to persist at a more elevated level, certainly compared with years past. Understanding the intricacies of the products, and the industry at large, is therefore essential.
Tackling potential knowledge gaps is something we take incredibly seriously at Rosemount, which is why we hold regular financial planning surgeries, bringing together advisers, the compliance team, the financial planning support team and the BDM team, as well as external presenters.
It provides a terrific opportunity for advisers to share their experiences with peers and pick their brains around specific options for clients. It also often leads to follow up meetings with the providers, where advisers are able to build better relationships and understanding around which products are best suited for their client base.
Expanding the adviser’s toolkit
Annuities are just one example of a subject which may be relevant for clients, but which may not be the most solid ground for advisers. Ultimately, advisers want to provide the most comprehensive service to their clients but doing so is easier said than done – there are so many different areas of financial services which could be relevant for the client’s needs.
That’s where working with the right network can make an enormous difference. Fundamentally, the best networks stand out from the crowd because of the support they offer their advisers, the way in which they assist them in providing the best possible guidance to those who need it.
That means boosting the adviser’s toolkit, providing the educational opportunities they need in order to best get to grips with areas as diverse as annuities, investments, protection and mortgages.
If advisers aren’t convinced that their network is delivering on this front, the new year represents an excellent opportunity for a fresh start. Working with the right principal will mean the adviser can take their service to the next level, with the clients the ultimate beneficiaries
