Annuities in transition: guiding clients through economic change
As the economic environment continues to change, annuities are becoming an increasingly important tool in retirement planning. You’ll want to stay attuned to how key economic factors such as interest rates, inflation, and market volatility are reshaping the annuity landscape and impacting what clients are looking for.
People retiring today may have held their pensions for many years, so it's crucial to review existing policies—especially the oldest ones. These older pensions might include valuable features like guaranteed annuity rates or guaranteed incomes. Such benefits can help retirees bypass market volatility and secure an income significantly higher than what’s currently available through standard annuities or investment returns.
What are the key economic influences on annuities?
Interest rates
Interest rates play a critical role in determining annuity payouts. When rates rise, providers can offer more competitive returns, which makes annuities more attractive to clients. But fluctuating rates can mean there’s reinvestment risk, especially for clients who are nearing the end of fixed-term contracts. You can help them weigh up their options so they can decide if they want to lock in current rates or wait for potential changes.
Inflation
Inflation decreases purchasing power, which can be worrying for clients on fixed incomes. Annuities that offer inflation-adjusted payouts or market-linked growth features can potentially preserve income value over time. So, it’s a good idea to look at what measures you can take to protect your clients from inflation as part of their broader retirement plan.
Market volatility
When there’s market instability, clients often look for products that offer a guaranteed income. Annuities with built-in protection features such as caps, buffers or guaranteed minimum income benefits, can appeal to clients who want to reduce their exposure to market downturns, while still allowing for potential growth.
3 ways you can help clients find the right annuity for them
1. Stay on top of new annuity products
The annuity market is always evolving and now there are more flexible and transparent products to choose from. Make sure you stay up to date with news about the latest offerings that allow for higher levels of personalisation. Customisable features can help clients align annuities with their specific retirement goals and tolerance for risk.
2. Integrate annuities into retirement plans
More employers are incorporating annuities into retirement plans for their employees, giving them the option to convert their savings into a lifetime income. You can play a key role in educating clients about these options and how they complement other retirement income sources.
3. Balance liquidity and guarantees
While there are many benefits to annuities, they also have their downsides, such as limited liquidity and surrender charges. It’s important to make sure clients understand the pros and cons of annuities. You can also help them think about how annuities play a part in a diversified and flexible retirement portfolio.
What does the future hold for annuities?
Continued economic uncertainty, demographic shifts and regulatory developments all have an impact on the future of annuities. If you take proactive steps to adapt to these changes by embracing innovation, educating clients and offering tailored strategies, you’ll be well-positioned to help clients achieve financial security in retirement.