The rise of Annuities?

antdon

Given the monumental changes to society, and the current financial bedlam, are Annuities going to become popular again.....

JoeCrystal

I just don't see it ever becoming popular until the rates are significantly higher. At the moment, it is quite low in term of annuity rates. What are monumental changes to society are you talking about?

antdon

JoeCrystal said:

I just don't see it ever becoming popular until the rates are significantly higher. At the moment, it is quite low in term of annuity rates. What are monumental changes to society are you talking about?

Lol.....  
I would guess 3 million people on the dole may have a small impact for the next 10 years or so.....
Oh.. and I agree the rates (what rates lol) are low,  but the assurance for index linked returns when world markets are likely to be very turbulent for a number of years....

jamesmorgan

Annuities become more attractive when economies enter a deflatory period.  This is because they are invested in lower risk bonds and are likely to have some protection against deflatory pressures.  During the great depression, prices fell 30% (and stock markets fell a lot more).  If you had a non-indexed linked annuity paying the same each year, the value of this payment would be worth 30% more after an event like the great depression.  This in part offsets the relatively low annuity rates at the moment.  However, bond (and especially gilt) yields are low at the moment and a similar strategy could be achieved by simply putting pension money into cash savings accounts.

Linton

Two problems with annuities:

1) To guarantee a future income the pension assets must be held in an asset whose value is guaranteed.  The closest to an absolutely guarantee is provided by government bonds.  At the moment government bonds provide an approximately zero return. So all annuities can do is to give you your own money  back with the added feature that people who live longer than slighty more than average (the pension companies must make a profit) are subsidised by those with shorter lives.

2) As life expectancy increases whilst maximum longevity doesnt most pension assets are distributed to almost everyone. As a longevity insurance scheme annuities dont work very well as insurance is based on the many contributing relatively small amounts of money to pay large amounts to a few.

The net result is that annuities provide little benefit compared with savings/investments.

zagfles

OP seemed to be talking about indexed linked annuities. Indexed linked gilts (govt bonds) returns aren't approx zero, they are negative! About -2%.

So yeah, they might become popular if people are happy to convert their £100,000 pension pot into a £2000 a year income. But I doubt it somehow...

Bravepants

I would think about it if annuity rates were at around the 4% mark (and index linked of course).

Thrugelmir

Annuities have never gone away. Now the bull market has well and truly hit the buffers. Drawdown might not be so attractive. When majority of people have relatively small amounts of money in their portfolios. Always be different for those who are financially secure and have a reasonable level of guaranteed pension in place as well. 

Silvertabby

Seems annuities may still be an option for those who don't trust themselves (or their partners) not to draw down at an unsustainable rate.  Or draw out additional lump sums for big purchases such as a wedding, new car , new kitchen etc.

Thrugelmir

Silvertabby said:

Seems annuities may still be an option for those who don't trust themselves (or their partners) not to draw down at an unsustainable rate.  Or draw out additional lump sums for big purchases such as a wedding, new car , new kitchen etc.

Not sure it's trust. On what basis can a drawdown rate be set?  While historical data was at best patchy and full of questionable unexplained what if's. The future holds nothing but uncertainty currently. End of an era I suspect. 
Pooled risk has it's advantages. Probably why annuities were created as far back as the 1700's. Nothing beats the old concepts. 

westv

When has the future ever been certain?