Expert: Paul Speight, Head of Business Development, Canada Life Facilitator: Ben MacGregor, Director, Client Development, Savanta
Headlines:
- Annuity Rates at 13-Year High: Annuity rates have risen significantly in 2022, reaching a 13-year high due to rising gilt yields and declining life expectancy. After years of low rates, annuities are more competitive for retirement income
- Life Expectancy Declining: Life expectancy has been falling in the UK, driven by trends like obesity, smoking, and inactivity. This reduces longevity risk, helping push up annuity rates
- Quantitative Easing Reversal Adding Pressure: The Bank of England is set to reduce its quantitative easing purchases of gilts. This will put further upward pressure on gilt yields and annuity rates
Discussion points:
Following an in-depth overview of annuity rates, the health of the nation, and how annuities can be used innovatively in retirement planning, key points discussed included:
- Annuity rates have increased significantly in 2022 due to rising interest rates and declining life expectancy. Rates are at a 13-year high. - Life expectancy in the UK has been falling, even before the pandemic, driven by trends like rising obesity. This reduces longevity risk for annuity providers
- Gilt yields have also risen, reducing the cost for annuity providers to generate income. This has helped push annuity rates up
- Quantitative easing (QE) purchased by the Bank of England is also set to decline, putting further upward pressure on gilt yields. Given higher annuity rates, delaying annuitization is now very costly due to lost income over time. Buying earlier, even at age 60, can make sense
- New uses for annuities include adding guarantees to provide a minimum payout period. This provides both income and inheritance benefits
- Advisers should consider annuitizing cautiously, in stages, to retain assets under management. But higher rates make annuities more viable for underpinning retirement plans.
- Insurers are struggling to handle the increased annuity demand, with poor service levels currently. But increased investment should help in 2022
Key takeaways:
- Review 60–65-year-old clients to see if early annuitization makes sense given rates
- Add annuitisation discussions to annual retirement reviews for underpinned income
- Monitor service levels and annuity providers to manage client expectations
- Research new annuity products with guarantees for inheritance benefits
- Model annuitizing 25-50% of assets for cautious drawdown clients
