Alternative options to single lifetime annuities are often linked to equities and FTSE products, putting members at greater risk but providing them with more flexibility than a standard annuity.
David Marlow, director of The Annuity Bureau, said: “Highly speculative income drawdown investors are likely to have high equity allocations and will therefore see the biggest falls in total fund values,” Marlow revealed. “Those with balanced portfolios can choose to draw income from other assets, such as bonds and commercial property, so allowing their equity holdings time to recover.
“With-profits annuities will provide some protection from the extremes of the markets,” he added.
He concluded that the demand of conventional annuities may increase as a result of the market turmoil.
David Bird, director at Towers Perrin, said the consequences of this market upset could change people’s opinions of lifetime annuities.
“Events like this show why standard annuities are more expensive. People are realising now that lifetime annuities actually aren’t that bad value for money.”
Dave Harris, director of Living Time, said members with traditional lifetime, enhanced, impaired and fixed-term annuities wouldn be unaffected by the market falls, as they all had “rock solid guarantees”.
“Options that cross over that investment risk line – like with-profit, unit-linked, phased retirement, variable annuities and equity release schemes – will be affected by the FTSE falls, depending on their level of investment in equities,” Harris said.
“Advisers who had told their clients to take out a with-profits annuity will face some awkward questions over the next few months,” he added.
Peter Carter, head of product marketing at MetLife, said there were some guaranteed income products that wouldn’t suffer from the FTSE falls.
MetLife’s guaranteed income for life offering periodically locks in gains made on the market to protect members from the current turbulence.
Charlie Kirby
