Commonplace Life returns to the annuities market

Standard Life returns to the annuities market

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Asset supervisor Commonplace Life has launched a pension annuity product, in one other signal that the fastened revenue market has been rejuvenated by greater rates of interest.

Pension annuities, which permit retirees to purchase a steady revenue for all times with some or all of their pension financial savings, have grow to be extra in style over the previous 18 months as rates of interest permit them to supply greater ranges of revenue.

“Annuities are more and more higher worth, with present charges bettering by 20 per cent up to now 12 months, as of June 2023,” mentioned Commonplace Life’s managing director for particular person retirement, Claire Altman. 

Its analysis prompt three-quarters of individuals mentioned they needed “revenue certainty” in retirement at a time when the financial outlook remained unclear, she added.

The annuities market was hit in 2015 by the Pensions Freedom Act, which ended any obligation for retirees to purchase the fastened merchandise with their pension pot. After the monetary disaster, low rates of interest stored annuity charges down and lots of savers moved to “drawdown” merchandise through which their financial savings have been invested within the inventory market and topic to its fluctuations.

Because the finish of 2021, rates of interest have elevated from near zero to greater than 5 per cent in lower than two years. Some annuities, generally known as enhanced or impaired annuities, now provide charges of over 8 per cent for retirees whose well being is classed as “poor”, based on mypensionexpert, a pension recommendation web site.

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Gross sales of annuities have elevated sharply over the previous 12 months as UK savers search for assured revenue amid an unsure macroeconomic image. Some £2.3bn of lifetime annuities have been offered within the first half of 2023, up from £1.7bn for a similar interval in 2022, based on the Affiliation of British Insurers.

Commonplace Life provided annuity providers on the open market till 2017, when it changed it with a multi-asset technique for retired buyers. Different insurers, resembling Prudential, additionally stopped providing the merchandise.

In 2019 Commonplace Life was fined £30mn for mis-selling annuities to prospects over the telephone between 2008 and 2016. The Monetary Conduct Authority claimed the corporate failed to inform prospects with well being issues that they may have purchased a greater “enhanced” product elsewhere.

Bar chart of Annuity sales (£mn) showing Providers have reported an uptick in annuity sales as rates improved

Some business figures welcomed the Edinburgh-based firm’s entry into the business on the premise that elevated competitors would profit buyers. The market is dominated by insurers resembling Aviva, Canada Life and Authorized & Basic.

“Commonplace Life’s re-entry gives a great addition to the annuity market and offers additional option to these in want of a assured revenue in retirement,” mentioned Helen Morrissey, head of retirement evaluation at Hargreaves Lansdown. 

“The surge in annuity charges we’ve seen over the previous 18 months has reinvigorated the market . . . Elevated competitors from such a widely known title ought to assist drive greater incomes for retirees and profit the annuity market as an entire,” Morrissey mentioned.

The funding platform mentioned the variety of quotes issued for annuities, that are calculated based mostly on elements resembling age and well being, surged by greater than 120 per cent within the 12 months ending July 2023 towards the 12 months earlier than.

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“An annuity does imply that you’re forgoing the possibility to get excessive returns by holding your belongings invested in equities or in greater return kinds,” mentioned David Sturrock, a senior analysis economist on the Institute for Fiscal Research, a think-tank.

He however cautioned that some buyers may misjudge the returns from an annuity by underestimating their lifespan. In an period of upper inflation, retirees wanted to look past the headline revenue determine and take into account inflation safety, he added.

“Annuities not linked to inflation may very well be much more of a priority if inflation goes to be excessive for an prolonged interval,” he mentioned. “The preliminary revenue you’d get from a non-inflation listed annuity will probably be greater however that can come at the price of decrease revenue sooner or later.”

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