But unfortunately, a recent Financial Services Compensation Scheme (FSCS) survey found that 19 million Brits aged over 50 are not considering annuities.

Respondents reported a range of reasons, including not knowing if annuities are right for them, fear of the provider going bust, not understanding how they work and a lack of protection if something goes wrong.

But are they missing out?

International Adviser spoke with Arbuthnot Latham, Atomos, Copia, The Fry Group, GBST, GPFM, Mercer & Hole, The Openwork Partnership, Progeny, Royal London, SG Kleinwort Hambros and Succession Wealth for their views.

A different retirement market

Times have changed, says Andrew Dixon, head of wealth planning at SG Kleinwort Hambros.

“While pension death benefits remain very attractive, it is difficult to see a return to pre-2008 levels,” he added. “The retirement market today is fundamentally different. Many people forget that there was little value in not taking an annuity at age 75 under the alternatively-secured pension rules. While annuities should certainly be considered, unless pension death benefits change it is difficult to see annuities returning to their pre-2008 levels.

“However, higher annuity rates mean higher returns from lower-risk assets, cash and government bonds. Therefore, even risk-averse, high-net-worth individuals are generally willing to trade the additional income potentially available from an annuity for the inheritance-tax benefits of pensions.”

‘Vastly different and better’

Scott Atkinson, managing director of GPFM Chartered Financial Planners, also points to a change in the landscape.

He explains: “Annuities have always had a place in financial planning, even when rates are not particularly attractive. Annuities offer certainty and are a useful financial-planning tool, particularly with more cautious and clients with less knowledge of investments.

“Certainly, annuities should always be fully considered where a client has a shortfall between guaranteed income and their non-discretionary spending. The range of annuity products and options now available is vastly different and better than 10-15 years ago.”

‘Annuities should not be ignored’

Jane Martin, chartered financial planner at Atomos, says annuities should be on the table from the start.

“Annuities should not be ignored and should be considered as an option. It is good practice to do this at the outset of advice, but also to review continuously. If they are not appropriate at the outset, they may become appropriate at a later stage. Clients’ health, marital status and other assets should be included as part of the annual review of income drawdown.

Partial annuities can be a good halfway house to secure ‘essential’ income for a household. Fixed-term annuities can help with shorter-term essential spending or tiding people over until other secured income, final salary and/or state pensions become payable.”

Consider basic outgoings

Michael Lapham, director of financial planning at accountants Mercer & Hole, added: “In our experience, the main reason most clients do not buy an annuity is not perceived low rates but the fact that they want to be able to draw pension benefits flexibly or that drawdown death benefits meet their needs better. The fact that we have seen an increase in annuity rates over the past year or two may not necessarily change this stance.

“However, in these instances we would still advise any clients whose basic outgoings, such as food and heating bills, are not covered by guaranteed sources of income to still consider purchasing an annuity with at least part of their pension savings, to meet these costs.”

Rachel Wyatt, wealth planner at Arbuthnot Latham, said: “As you approach retirement, you need to decide how to convert savings into an income stream. An annuity requires you to fix the terms on how your income will be paid at the outset. This decision can feel overwhelming, and clients can be quick to dismiss annuities, stating costs, a desire to retain control over their savings and a reluctance to give up income flexibility. It may feel like a more straightforward option to draw income direct from your savings, but your income is at risk. You remain invested in the market and the sustainability of your income will depend on the performance of the underlying assets.

“When you purchase an annuity, you transfer investment risk to the insurance company. For most pensioners, their main concern is having lifetime financial security, and so annuities can give a level of financial security, providing peace of mind that they will not outlive their savings. In exchange for a capital lump sum, you receive a secure and regular income that is 100% protected under the FSCS, with no upper claim limit.

“Good retirement planning should consider the ability of all the available options in meeting a client’s objectives. Understanding how best to meet your income requirements in retirement will depend on your individual circumstances, your need for guaranteed income and your tolerance and appetite for risk.”

‘Demands and objectives of a modern retirement’

Hayley Burns, wealth planner at Succession Wealth, says that annuities should always be looked at as an option.

She said: “Annuities should always be a consideration when it comes to retirement planning; having peace of mind that you have a guaranteed income for life can be a great option.

“However, as fewer of us nowadays have ‘traditional’ family set ups, whether by choosing not to get married or having been divorced, annuities have limitations. Many of us are looking to ensure that our beneficiaries, not just a spouse, receive as much of our hard-earned and unused retirement fund as possible. This understandably makes the idea of having to choose a traditional ‘guarantee’ period, which you may well live past, less desirable.

“I also find that more and more people are concentrating on enjoying the earlier years of retirement, with the knowledge that in later years they may well have less income available and are comfortable with that. My clients are increasingly content with knowing that they won’t be doing the same amount of travelling or socialising as they age.

“The ability to have a more flexible approach to retirement, whether that is to allow a partial retirement, retirement from a high-pressure job or simply to allow budget for travel, has become a priority for many. Although some annuity providers have introduced more innovative short-term annuities in recent years, making them more attractive in some cases, in my opinion, they have not caught up with the demands and objectives of a modern retirement.”

Opportunity for provider innovation

David Simpson, head of EMEA at GBST, said: “We think that annuities play an important role in later-life income planning. With changing life expectancy, wealth composition and expectations of retirement, advisers and investors are likely to need to take more of a ‘mix and match’ approach to income planning, using both guaranteed-income solutions and income drawdown to support income requirements, aligned to an individual’s needs through different stages of retirement.

“There is a huge opportunity for providers to create more innovative retirement solutions that combine annuities with flexi-access drawdown that sit alongside ISAs, general investment accounts and investment bonds on the same platform, to make it easier for advisers to meet their client’s retirement-income needs while optimising tax and death benefits.

“While the technology is already available to support the distribution of different retirement solutions within a single tax-efficient wrapper and alongside other retail investment products on the same platform, many traditional annuity providers are not currently set up to deliver a scalable new business proposition that meets the expected demand for these solutions.”

Financial Conduct Authority (FCA) focus on decumulation

Robert Vaudry, managing director of Copia, expects an increased use of annuities.

He said: “Annuities offer attractive rates of income and are uncorrelated to other assets, which makes them a useful part of a retirement income plan. At Copia, we’ve taken this idea a step further, building a decumulation strategy that works in conjunction with a guaranteed-income solution to increase the opportunity to outperform and provide greater certainty of outcome in retirement without increasing the overall investment risk.

“Using guaranteed income as an asset class in this way means we can offer investors in drawdown some protection against the effects of ‘pound cost ravaging’ by reducing the need to sell assets in unfavourable markets to generate income. More of the assets stay invested for longer, increasing the opportunity to outperform, without increasing the investor’s overall risk. As the FCA puts more focus on decumulation with its thematic review of retirement-income advice, we’d expect to see further innovation around investing for retirement and increased use of annuities as part of a combined portfolio.”

Changing requirements

David Owen, wealth proposition director at the Openwork Partnership, says: “We have all heard of the 4% rule – a rule of thumb that says if we invest in a balanced portfolio and take 4% per year, gross of cost and charges, the money should last 30 years – leaving £1 remaining. However, a 65-year-old male in the UK now, who gets whole-of-market advice, will be offered around 5%, inflation-linked, guaranteed, via an annuity. Or, for those who don’t expect inflation to ever feature again in the economy, 8.5% flat for life.

“Of course, each year our requirements change, and this is why an annual retirement-income strategy needs a tactical adjustment – using all the tools available.”

Clare Moffat, pensions expert at Royal London, says annuities have their place and should not be overlooked.

She added: “If you purchased an annuity in 2021, escalating by either CPI or RPI, you will be delighted with the growth in income because of the high rates of inflation. If you didn’t choose escalation, you’d be in a very different position as the purchasing power of your income will be reducing significantly.

“However, if you did choose an escalation option, it will have greatly reduced your income level at outset, though that income will be increasing now. Although these vagaries make annuities seem complex and can be difficult to explain, they shouldn’t be completely disregarded. Retirement will depend on an individual’s needs and while annuities aren’t for everyone, there are scenarios where they could be beneficial, so they should be considered as part of the retirement planning process.

“Many want complete flexibility with their retirement income, which explains the popularity of drawdown, while for others, buying an annuity offers them the comfort of a guaranteed income. As people get older, some are keen to introduce a form of guarantee, so a happy medium for many is an annuity to cover basic living costs, providing comfort and reassurance, while leaving the rest invested for extra flexibility.”

Limits future options

Huw Wedlock, director at The Fry Group, Singapore, said: “Brits have largely turned their back on annuities over the last 15 years, but now could be a good time to reconsider. One of the key drivers concerns interest rates, which have risen sharply over the past 18 months. Given that annuity rates largely follow interest rates, it’s clear that locking in a long-term, guaranteed income stream in the form of an annuity now makes much more sense than it has in the past 15 years.

“An annuity can provide a guaranteed income stream for life − one that isn’t dependent on underlying investment performance. Annuities can have additional levels of flexibility built into them too, such as single or joint-life options, spousal benefits and indexed annuity payments, as well as capital guarantees.

“But it’s worth bearing in mind that buying an annuity is a one-off decision and does limit future options when it comes to accessing any pension savings. Remember too that no further death benefits are available following annuity purchase, once the person receiving them has passed away. Pension drawdown remains the most flexible way of accessing retirement pots.”

Dean Kemble, chief commercial officer at GSB Capital, added: “With changes within UK pensions regulation over the past 10 years and with interest rates historically low until recently, annuities have not been seen as a preferred option for most with a sizeable pension.

“Annuities and fashion do not usually go hand in hand in a sentence. Still, with interest rates rising, there is reason for them to be considered as a solution for retirement income. I believe several factors discouraged people from considering annuities as a feasible option for their retirement funds in the past.

“Once an individual purchases an annuity, it typically cannot be changed or reversed, making it inflexible. This may cause hesitation in committing a large portion of one’s savings to an annuity, mainly if one needs to access those funds for unexpected expenses or emergencies. When an individual decides to purchase an annuity, they must understand that they are surrendering control of their principal. This means that they will not have the ability to make investment decisions or access the lump sum of their money.

“While annuities provide a guaranteed income stream for life, some individuals may be concerned about ‘wasting’ their money if they pass away relatively early after purchasing the annuity. They worry that their heirs won’t receive a substantial inheritance. As there are many options, including level annuities; escalating annuities; inflation-linked annuities; impaired or enhanced annuities; lifetime annuities; joint-life annuities and short-term or fixed-term annuities, professional advice should be sought.

“Although annuities may not be suitable for everyone, they can still provide significant benefits to individuals who want a reliable income source during retirement and protection from the risk of running out of savings. With interest rates rising, the option should be more of an informed consideration than in the past, when interest rates were low. Before deciding whether an annuity is the right choice, it’s crucial for individuals to seek advice from a financial adviser and to evaluate their financial goals, risk tolerance and overall retirement plan. This will help individuals understand the advantages and disadvantages of annuities and other retirement-income strategies.”

‘A niche product’

James Batchelor, a chartered financial planner at Progeny, said that despite increasing interest in annuities, they do remain a “niche product”.

He added: “It is certainly true that annuity rates represent better value for money than they did a few years ago, but this has also been accompanied by increasingly higher inflation. This means that unless a client selects an inflation-linked annuity, the real-terms value of the annuity that they purchase may be more quickly eroded over time.

“For people who have large pension funds relative to their needs and who are risk averse for example, buying an annuity now would provide a ‘copper-bottomed’ income at a better level then we have seen for several years. Not only that, but this income will continue to be paid for life, regardless of how long someone lives, so this could be a valuable guarantee that they could wish to take advantage of.

“On the other hand, the level of income available does not change the fundamental nature of annuities. Someone must still extinguish their pension fund in order to buy one, compared to the greater choice offered by drawdown. It is also the case that unless someone purchases an inflation-linked annuity, the real-terms value of the income provided will erode over time. The level of starting income that these inflation-linked products offer, however, is noticeably lower than standard annuities.

“This means that for those people who wish to buy an annuity, the choice is between a lower level of starting income that is protected against inflation in the future or a higher level of starting income that will gradually lose its purchasing power.

“It does not have to be an either/or situation, however, and for some clients, particularly those who do not have access to a defined-benefit pension, there can be logic in buying an annuity that will cover a portion of total living costs, such as basic living costs only, and leaving the remaining pension fund in drawdown.

“This can help to relieve anxiety about meeting essential living costs while allowing the residual unspent funds to remain invested, which then have the potential to achieve long-term, compound growth.”

Advice Intelligence brings together independent CRM solution, client engagement, goals-based advice, mobile, workflows and apps together in a single digital platform.

GBST said that the acquisition of Advice Intelligence is “highly complementary” to its recently purchased salesforce adviser solution WealthConnect.

It will also “further accelerate the company’s ability to offer both digital and hybrid advice to the global wealth market”, GBST added.

Robert DeDominicis, global chief executive of GBST, said: “The acquisition accelerates the delivery of our roadmap and positions GBST perfectly to capture a significant share of the growing advice practice management, digital and hybrid advice markets through the delivery of its market leading cloud-based portfolio of solutions.

“With the combined offerings of GBST, GBST WealthConnect and GBST Advice Intelligence to streamline advice and enhance client experience, GBST is well-equipped to expand its presence in the UK, Australia, and internationally.”

It showed that changes in regulation, longevity, wealth and retirement norms have reshaped the income needs of retirees.

According to the study, this means advisers and investors need to place greater emphasis on guaranteed income solutions as well as flexibility of income drawdown when retirement planning.

GBST added that more innovation is required to “fully embrace” the opportunities offered by combining annuities and flexi access drawdown – as well as other products – as it believes this can help an individual to achieve their retirement income needs while optimising tax and death benefits.

David Simpson, head of EMEA at GBST, said: “We have no doubt that the various pressures shaping people’s future retirement income needs, alongside the economic impact of rising interest rates and annuity rates, will drive innovation within the annuity market.

“We expect to see more products where guaranteed income is paid into a pension wrapper and drawn by the consumer to meet varying needs and tax positions. When these solutions sit alongside other retirement planning products such as ISAs, investment bonds and flexi access drawdown, guaranteed income products start to look like a much more attractive option for advisers and their clients, and will become a key component of many retirement plans.

“For providers, administering flexible retirement solutions and other retail investment products on the same technology and across the same operational teams and processes also drives down costs, while improving the service and experience they can deliver to advisers and end-investors.”

Campbell Fleming, chief executive of the wealth and asset consolidator, will step down at the end of June, the firm has announced.

Fleming departs for personal reasons, having overseen the formation of the company, including numerous acquisitions, during his 20 months in the role.

In an announcement on the London Stock Exchange, the company said it does not plan to replace Fleming directly; instead, chairman Martin Gilbert and Gary Marshall, chief finance and operations officer, will assume his principal responsibilities.

Gilbert will be responsible for the overall strategic direction of the group, as executive chairman, while Marshall oversees day-to-day operations.

AssetCo confirmed that Alex Hoctor-Duncan, who leads the River and Mercantile brand, is already taking on additional responsibilities.

Bravura Solutions

Libby Roy will step down as chief executive and managing director effective immediately and will remain with the company until 30 June 2023 for handover and transition purposes.

The board has commenced a global search for a chief executive to lead Bravura.

Andrew Russell will become interim chief executive. Russell is currently an independent non-executive director.

SS&C Hubwise

Andre van der Westhuizen has been named as chief information office of wealth at the multi-asset investment platform, according to his Linkedin profile.

He joins from Quilter, where he was head of technology.

M&G Wealth

The business has confirmed that David Montgomery will stand down from his role as managing director.

He will leave at the beginning of August.

M&G Wealth did not confirm if it was looking to replace him.

Lighthouse Canton

The wealth manager has named Rohit Johri as executive director and will be based in the firm’s Dubai International Financial Centre (DIFC) operation.

Johri was previously a director and senior banker at BNP Paribas.

Evelyn Partners

The wealth management and professional services group has named Craig Dowsett as a financial planning director in the firm’s London office.

He joins Evelyn Partners from Vintage Wealth Management, where he spent more than seven years working as an IFA.

Guernsey Finance

Kevin Boscher, who is chief investment officer at Ravenscroft, has taken on the role of deputy chairman.

He joins Paul Sykes, Kate Storey, deputy Steve Falla, Guernsey Finance chief executive Rupert Pleasant and current chairman deputy Lyndon Trott.

Franklin Templeton

The asset manager has named Jacob Rowe as business development director for its UK wholesale distribution team.

Rowe has about 10 years of industry experience, having joined from Russell Investments, where he spent the last seven years in an intermediary distribution role.

Charles Russell Speechlys

The law firm has named Vanessa Duff as a partner within its family team.

She joins the Hong Kong office from Withers Hong Kong.

GBST

The global wealth tech firm has appointed Ross Hamilton to the newly created role of head of cloud infrastructure for retail wealth.

Previously, Hamilton was head of infrastructure at Bravura.

Atomos

The advice-led wealth manager has named Max Newman as direct equity specialist.

He will work alongside Haig Bathgate, with responsibility for the firm’s direct equity proposition.

Newman was previously a director and portfolio manager at Julius Baer.

Ben Bulmer has been named as chief financial officer at the global financial services group.

Bulmer is currently chief financial officer of insurance and asset management at the company.

He succeeds James Turner, who has resigned as chief financial officer in light of an investigation into a code of conduct issue relating to a recent recruitment situation.

Prudential said: “The group sets itself high standards and Mr Turner fell short on this occasion. Mr Turner will remain available to the group for a period of four months to support a smooth transition.

“There are no implications for the financial performance, reporting or operations of the business.”

FIM Capital

The Isle of Man-based wealth firm has promoted David Bushe as chief executive.

He previously was investment director at the company.

Prior to FIM Capital, he was a director at Ravenscroft Group.

Novia Financial

The platform business has brought together its operations and technology teams under the direction of Eden Scrivenger, who takes on the expanded role of chief technology and operations officer.

Scrivenger, who joined the platform in August last year, will be supported by newly appointed operations director, Julie Gawthorpe, who joins from pensions administration provider Diligenta.

FWD Group

Sid Sankaran has been named as managing director and group chief financial officer, effective 1 September 2023, subject to regulatory approval.

Sankaran will join the company as senior adviser from 1 June 2023.

He will succeed Jon Nielsen, who will be pursuing a career opportunity in North America.

GBST

The global wealthtech company has hired Simon Clare as head of product innovation.

Before joining GBST, Clare was chief product officer at FE Fundinfo.

Isio

The pension consultancy firm has promoted Emily McGuire to lead its investment advisory team.

McGuire, previously at Aon, joined Isio in May 2022.

She takes on the role from Nick Evans, who is turning his focus to client development, exploring new opportunities to diversify and grow the business.

JM Finn

Rebecca Dawkins has joined the wealth manager as an associate wealth planner.

Before joining JM Finn, she was at London Wall Partners and prior to that at Saunderson House.

Marlborough

The fund manager has appointed Kevin Addison as head of UK wholesale and institutional funds distribution.

Addison joins from Downing Fund Managers, where he was head of sales and distribution. Before that, he was head of funds distribution at Brooks Macdonald.

Old Mill

The wealth manager has promoted chartered accountant Jamie Rudge and compliance director Duncan Parkes as technical partners.

The promotions bring the total number of partners to 25.