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02 Aug 2017

Retirement income planning: no longer a one-off decision

People planning their retirement income are looking for flexibility, with differing levels of income for different stages of retirement, according to new research.

A report from software company IRESS on the retirement income market, which draws on IRESS data and other sources from across the industry, says that retirement consists of phases with changing requirements driven by changing personal circumstances. As a result, income planning is no longer a one-off decision.

The demand for more flexible retirement income options is illustrated by the fact that fixed-term annuities now account for nearly a quarter (23%) of all quotes generated, compared to 15% at the end of 2015. Fixed-term annuities can help people service financial commitments such as mortgages into retirement.

Meanwhile, equity release volumes are up 34% compared to a year ago, and more than 50% of all annuity quotes are for enhanced annuities, including medical and health information.

Commenting on the findings, Chris Pitt, head of market analysis at IRESS, said: “Retirement today is a journey and not a destination. Sustainable retirement income remains a core priority, but the reasons for needing it are changing and ‘sustainable´ does not necessarily mean life-long. Retirement planning is adapting to the new multiple stages of retirement, where specific income requirements change over time, and we hope that the FCA´s Retirement Outcomes Review will further stimulate demand for advice to help consumers navigate these complex decisions.

“The increase in popularity of fixed-term annuities, enhanced annuities and equity release, suggest that retirees are becoming more discerning, exploring and testing the various flexible options open to them. With the FCA taking a close interest in this space, the challenge for the industry is to innovate with competitive products that can adapt and interact to achieve the results needed for a more flexible period of later-life living.”

Separate research from Aegon, discussed in Actuarial Post, underlines the demand for flexible retirement income, combined with some certainty.

The company found that 87% of people now want the flexibility to choose how and when they will access their retirement savings throughout retirement, up from 81% in 2015. At the same time, a growing number of people value the importance of a guaranteed income, rising from 72% of people two years ago to 79% today.

Steven Cameron, pensions director at Aegon, said that while these two ambitions “are often seen as conflicting, with drawdown and annuities often painted as polar opposites on the flexibility against security scale”, the reality is different.

“Two years on from the pension freedoms, the choices available to retirees in search of both flexibility and certainty have grown, and solutions such as drawdown with guarantees are helping to cover both priorities at the same time,” he explained. “What´s crucial is that those about to retire understand all the possible options and seek professional financial advice to help them navigate the new pension landscape.”

Copyright © M2 Bespoke 2017

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