Standard Life launches annuity as rates recover, reigniting saver interest

Retirement income: Annuities provide a guaranteed income until you die, while keeping a pension fund invested exposes you to financial market risk

Standard Life has launched an annuity deal following a strong recovery in the retirement income they can buy, which has tempted many older savers to give them another look.

This would offer a 65 year old with a £100,000 pension pot living in a medium band postcode around £7,000 a year, with no guarantee period after purchase or inflation protection.

Annuities provide a guaranteed income until you die.

But they have been shunned for years due to poor rates and restrictive conditions, and after gaining a bad reputation on the back of annuity mis-selling scandals.

Pension freedom reforms in 2015 prompted most savers to keep their funds invested and live off withdrawals instead, despite the financial market risk involved.

However, the recent run of interest rate hikes mean annuity providers can afford to fund much more attractive deals, prompting a resurgence in sales.

Standard Life stopped selling annuities in early 2017. It is now under different ownership, as part of Phoenix Group, and says it is the first new provider to enter the annuity market since the pension freedom legislation eight years ago.

Annuity offers depend greatly on personal circumstances including health, but Standard Life gave the following examples of the deals it might offer a 65 year old living in a medium band postcode. 

The joint life cases assume the spouse is the same age as the annuitant.

Single life, level (meaning no rises in line with inflation), no guarantee period after purchase: £7,002 

Single life, RPI inflation link, five year guarantee period: £4,414

Joint life; 50 per cent income after first death, level, no guarantee: £6,562

Joint life, 50 per cent, 3 per cent rise per year, no guarantee: £4,661

In terms of how that compares with the wider market, industry figures show that for £100,000, a healthy 65-year-old can now buy a retirement income of around £7,320 a year, with no inflation protection and a five-year guarantee period – protecting your cash immediately after purchase.

For the same sum, the same person with a spouse three years younger could buy a joint life annuity with inflation protection but no guarantee that provides £4,840 a year, according to the latest data from Hargreaves Lansdown (see below).

Source: Best buy industry figures from Hargreaves Lansdown, 31 August

Recent research revealed over-50s remain dubious about annuities despite the improvement in rates.

One in five regard the products as poor value, some 44 per cent believe they are inflexible, and 45 per cent think they are risky in case you die earlier than expected.

Annuity providers try to address these concerns by offering options like a guarantee period in case you die soon after purchase, and a ‘retirement account’ version that allows you to turn income off and on.

Standard Life says annuity rates rose 20 per cent in the year to June, and its new deal is aimed at customers aged 55-75.

Its offer includes the following.

– Rates for healthy people and enhanced rates for those with medical conditions

– Inflation protection options of up to 10 per cent, or tied to RPI inflation, or RPI but capped at 5 per cent

– Guarantee periods of up to 30 years, where an income will be paid to beneficiaries or dependents for a fixed time if you die

– Value protection of up to 100 per cent of your purchase money, less any income you received, which is paid as a death benefit to a beneficiary

– Payment options of every month, quarter, half year or year, in advance or arrears

– Minimum purchase of £10,000 after charges, and no maximum

– The annuity is available through financial advisers, brokers and quote comparison sites.

Regarding its charges, Standard Life says: ‘There are no explicit fees paid by the customer where the customer takes the annuity without advice.

‘The annuity income incorporates all expenses associated with the set-up of the annuity, including new business costs, acquisition costs such as marketing, and commission paid to intermediaries.

‘Any commission payable to the intermediary is always fully disclosed to the customer and typically ranges between 1 and 3% of a customer’s fund.

‘For annuities purchased through an adviser, adviser charging is facilitated and in this case a fee is agreed upfront between client and adviser.’

Standard Life adds that is approach on charges is in line with industry practice.

Claire Altman, managing director for individual retirement at the firm, says: ‘In an uncertain economic climate, in which three quarters of people say they want income certainty in retirement, the guaranteed income offered by an annuity is likely to be an ideal solution for many.

‘I think people are beginning to see this value, with the first quarter of this year proving to be the highest quarter for annuity sales since the pension freedoms.’

The pension freedom shake-up eight years ago prompted most savers to keep their funds invested, but this involves monitoring a portfolio and exposure to the risks of financial markets.

Explore how to invest your pension, invest-and-drawdown plans versus annuities, and how to combine pension drawdown with annuities.

This post first appeared on Dailymail.co.uk