A significant improvement in annuity rates over the past 12 months has also had a positive impact on the cost of guarantees, new research from Canada Life has suggested.

Canada Life’s analysis showed that in one example, the margin between no guarantee and a 20-year guarantee is just a 4% reduction in annual income, with a £100,000 annuity securing an income of £6,532 compared to £6,270, a reduction of £262 a year.

The 20-year guarantee would return income of at least £125,400, irrespective of what happens to the customer.

In the case of no guarantees, income stops immediately on the death of the customer, whereas for guaranteed periods, a customer can opt for any income guarantee period between one year and 30 years, subject to a reduction in the income received. In the event of the death of the customer, the income would continue to be paid to a spouse or beneficiary for the remaining guarantee period.

In terms of spouse benefits, a customer can also choose to pay anywhere between 0% and 100% of the original annuity income to a spouse, subject to a reduction in income. Upon the death of the spouse, this income would stop.

A customer can also choose to protect the capital purchase value of the annuity, up to 100%, again, subject to a reduction in annual income. Upon the death of the customer in this instance, the difference between income received to date and the “value protected” amount is paid to the spouse or beneficiary, in the form of ongoing income or the value can be commuted as a lump sum.

Retirement income director at Canada Life, Nick Flynn, highlighted that as annuity rates have improved, the cost of the death benefits available has also done so.

“No longer do clients need to trade off a big drop in income to provide valuable guarantees,” Flynn said. “The reduction in income from choosing a longer guarantee period which effectively provides a ‘money-back’ guarantee, is now so narrow as to cost peanuts, so it’s completely bonkers not to consider some guarantees to provide additional certainty.

“Now one of the biggest barriers to annuities, ‘I won’t get my money back if I die early’, can really be challenged and guaranteed periods need to be explored. People considering annuities as part of their retirement income plan should seek the help and support of a specialist broker or regulated financial adviser. That will help ensure all options are considered in the rounds before making any irreversible decisions.”

Share Story: