Pension option makes resurgence to offer Britons thousands

Pension decisions can often be difficult to make, but there are two main options available: annuities and drawdown. While an annuity was traditionally the only option available, the introduction of pension freedoms made drawdown a choice – and the latter surged in popularity.

However, annuities appear to be making a resurgence and could secure Britons thousands of pounds a year in retirement income. spoke to Karen Barrett, CEO at Unbiased, who said: “Annuities are certainly more attractive than they have been at any point since the 2008 financial crisis.

“A combination of paltry rates and retirees preferring to draw income flexibly using drawdown had turned many people off annuities.

“But they are now back on the table after rates have risen more than 50 percent in the past year in response to rising interest rates and gilt yields.

“Stock market turbulence is definitely making annuities more appealing.

“That’s because annuities aren’t affected by how markets behave, unlike income drawdown, where sharp market falls can wreak havoc on a retirement pot lasting the distance.

“When the future is so uncertain, like the position we’re in right now, peace of mind becomes more valuable.

“And so it’s natural for people to crave products that offer greater security, such as annuities.”

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For this reason, annuities are likely to be most suited for those who need a guaranteed and stable income, one of the key advantages of this option.

With an annuity, a person’s retirement lifestyle will not depend on good performance in the stock markets.

However, while the option remains attractive, Ms Barrett also said it must be carefully considered, as there are some drawbacks.

She continued: “On the flipside, once you’ve bought an annuity, you can’t change your mind – the terms you choose at outset are locked in for life.

“If annuity rates improve in the future, or you wish you’d opted income drawdown, in most cases there’s nothing you can do.

“In addition, when you buy an annuity your savings pot is traded for an income, which means that when you die, your annuity does with you – or your spouse if you choose a joint-life annuity.

“There’s no pot for your children to inherit.”

While people will often consider annuities and drawdown against each other, it does not always have to be this way.

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In fact, people could choose to adopt a “blend” of the two, using some income to purchase an annuity, while keeping the rest invested in drawdown.

Of course, this can be a complicated decision for someone to make – particularly, as it will have a bearing on the rest of their lives.

As a result, Ms Barrett urged people to think carefully before making any moves.

She concluded: “Before choosing any retirement income product, it’s wise to take expert financial advice.”

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