The Return of Purchased Life Annuities?
This is Money reported this week that purchased life annuities (PLAs) are on their way back[1]. Concerned about low interest rates, many savers find that buying an annuity, even if their capital is not held as pensions saving, represents a viable way to secure a decent income in retirement. Interest rates on cash savings are an important framing point for advisers and consumers. The longer that rates stay low, the more attractive returns on PLAs will appear. ILC-UK has been making the case for PLAs for a while. We published a report on the issue, authored by Jackie Wells, in October 2009, which argued that around 1.3 million people could benefit from a PLA – despite the fact that less than 160,000 PLAs are in force, and that new business in 2008 amounted to less than 1000 sales[2]. If the report of increased sales is reflected across the market, interest in PLAs is now growing. With better information and advice, PLAs could be a viable option for many more people. Another ILC-UK report on the future of retirement, published today, argues that we need as much flexibility as possible in the financial products available to people approaching retirement[3]. Clearly, PLAs could be a vital part of this landscape going forward, enabling people with regular savings to purchase annuities.
This development is especially interesting given the new government’s intention to end compulsory annuitisation at 75. While their motives are understandable, it must be upheld that annuities are fundamentally a good product for most people. The potential of PLAs demonstrates this. So whatever policy change results, the government must ensure that providers remain able to provide a wide range of financial products to older people.
Craig Berry References 1. S. Womack (2010), ‘A legal way for savers to get 14% interest’, This is Money, 13 June 2010, available at http://www.thisismoney.co.uk/savings-and-banking/article.html?in_article_id=506158&in_page_id=7&ct=5
2. J. Wells (2009) ‘Time to annuitise?’, ILC-UK. available at http://www.ilcuk.org.uk/record.jsp?type=publication&ID=48
3. C. Berry (2010) ‘The future of retirement’, ILC-UK, available at http://www.ilcuk.org.uk/record.jsp?type=publication&ID=61
4. BBC (2010) ‘Policy-by-policy: the coalition government’s plan’, 21 May 2010, available at http://news.bbc.co.uk/1/hi/uk_politics/8693832.stm