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McPhail: I'm worried about decline in annuity sales

Providers are pulling out of the annuity market, with potentially worrying implications for retirees

I'm worried about the ongoing decline in annuity sales. We know many people still want and value a guaranteed income in retirement. We also know that as they get older, people are more inclined to buy the guaranteed income an annuity delivers.

For most people, the best combination of retirement income provision will consist of some secure income (such as state pension, final salary scheme, or annuity) and some flexible capital in the form of a drawdown arrangement.

The problem we have at the moment is interest rates are so low, and the annuity brand has become so toxic that hardly anyone is buying an annuity. The knock-on effect of this is that one by one, annuity providers are pulling out of the market. If current trends continue, in a few years we may not actually have any annuity providers left at all.

I'm not sure whether running an annuity business is something you can switch off and on at will. I suspect once a company has pulled out of the market, it would take some effort to move in again. In the meantime, we're in danger of seeing the market shrink so much that it starts to undermine effective competition.

The Financial Conduct Authority has said it isn't worried about this, but one day soon it may have to worry. Maybe at that point we could see the government step in and start selling state-funded annuities. 

In the meantime it is up to the industry to promote the benefits of a guaranteed income and to encourage investors to shop around for the best possible terms available to them, while they still can.

I'm worried about the ongoing decline in annuity sales. We know many people still want and value a guaranteed income in retirement. We also know that as they get older, people are more inclined to buy the guaranteed income an annuity delivers.

For most people, the best combination of retirement income provision will consist of some secure income (such as state pension, final salary scheme, or annuity) and some flexible capital in the form of a drawdown arrangement.

The problem we have at the moment is interest rates are so low, and the annuity brand has become so toxic that hardly anyone is buying an annuity. The knock-on effect of this is that one by one, annuity providers are pulling out of the market. If current trends continue, in a few years we may not actually have any annuity providers left at all.

I'm not sure whether running an annuity business is something you can switch off and on at will. I suspect once a company has pulled out of the market, it would take some effort to move in again. In the meantime, we're in danger of seeing the market shrink so much that it starts to undermine effective competition.

The Financial Conduct Authority has said it isn't worried about this, but one day soon it may have to worry. Maybe at that point we could see the government step in and start selling state-funded annuities. 

In the meantime it is up to the industry to promote the benefits of a guaranteed income and to encourage investors to shop around for the best possible terms available to them, while they still can.

FCA Retirement Income Market Trends, October 2016-March 2017. Percentage comparison with same timeframe last year, covering 55 firms

FCA Retirement Income Market Trends, October 2016-March 2017. Percentage comparison with same timeframe last year, covering 55 firms

FCA Retirement Income Market Trends, October 2016-March 2017. Percentage comparison with same timeframe last year, covering 55 firms

FCA Retirement Income Market Trends, October 2016-March 2017. Percentage comparison with same timeframe last year, covering 55 firms

FCA Retirement Income Market Trends, October 2016-March 2017. Percentage comparison with same timeframe last year, covering 55 firms

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