Financial advisers have been reporting that risk-averse clients are looking for guaranteed income from their pension funds, rather than accepting the uncertainties of income-drawdown schemes.
Annuities, which pay a guaranteed income for life in retirement, have fallen out of favour since the pension freedom reforms, with drawdown plans becoming much more popular. Many savers prefer the flexibility of drawdown arrangements, even though these carry more risk.
However, annuity providers have seen a three-fold increase in applications for certain types of annuity in recent months, with advisers suggesting that many clients have been spooked by the pandemic-related market volatility.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Such a response is understandable, but could prove costly. One market impact of Covid-19 has been a sharp rise in the price of gilts, regarded as a safe-haven asset by many investors; this has meant a corresponding fall in gilt yields, to which annuity rates are closely linked.
As a result, the average annual standard annuity income is now 5.3% lower than at the start of the year. Pension savers may be locking into rates at the worst possible time.
-
Barclays begins paying up to £100 compensation to customers after banking outageBarclays will pay up to £7.5 million in compensation to customers after its banking services were disrupted by an IT outage
-
Review: Shangri-La Paris – an ode to the world’s best foodNatasha Langan enjoys fine French and Chinese cuisine at the Shangri-La Paris
-
A new wealth tax is a terrible idea. The rich are already being hit by sneaky taxes – Merryn Somerset WebbOpinion Ideologues want to squeeze more tax out of the rich with a wealth tax. They’re already wrung dry, says Merryn Somerset Webb
-
Has your pension plunged in stock market turmoil? How to avoid creating real shortfallsSliding stock markets are no reason to sell out of your pension in a panic, says David Prosser
-
Pensions revolution: how to profit from the trends shaping the UK pension systemThe UK pension system is one of the biggest in the world. Big changes are under way, says Rupert Hargreaves
-
What MoneyWeek writers read and watched in 2024Here's a roundup of MoneyWeek's favourite books, films and TV shows in 2024
-
Parents face £1,000 'nanny tax' – how to afford itHiring a nanny is about to become even more of an expensive hassle for families, especially those in London. Here's how to cut costs
-
Is it cheaper to be a sole trader?It might be cheaper to be a sole trader due to changes to the tax system
-
Should you switch your pension fund?Many pension fund options are poor performers, thanks partly to high charges. Is it worth switching?
-
The best fintech apps on the marketFrom digital banking to investment platforms, here are the top fintech apps on the market right now, according to David C. Stevenson
