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02

People want guarantees but are turning away from annuities 

Open-access content Monday 23rd February 2015 — updated 5.13pm, Wednesday 29th April 2020

Savers want income guarantees with their pensions but people are turning away from annuities because they “don’t appear attractive”, an event was told.

Douglas Huggins, research actuary at Hymans Robertson, said while people did not like annuities, some of their features were still popular.

Speaking at a seminar, organised by the Financial Reporting Council (FRC), about product design and distribution, Huggins said: "Everyone is against annuities, but when you ask people with funds in their retirement what they would like without using the word annuity, they will describe various features of annuities to you."

However, Huggins described annuities as running a risk of low value for money. He said: "So people do want various forms of guarantees, but in providing them, particularly in a low-yield environment, we have the risks of guarantees not providing value for money. People are taking a lump sum because they [annuities] don't appear attractive."

In terms of product design, because of the uncertainties tied to pension reforms coming into force on 6 April, Huggins concluded there would not be many pension products being launched in the market near that date. 

He said there would probably be "some fairly simple products, maybe some very basic guarantees in them".  Huggins added: "But maybe people are thinking about more complex guarantees; as soon as we get to guarantees, we then have to introduce all sorts of extra risks."

Summarising a discussion, he said there were other parties involved in product design. "When guarantees are complex, the conclusion around our table was that actuaries have a real part to play in this but often they are just one part of a large organisation," Huggins said.

The discussion was part of an event about public interests risk relating to pensions. It was created to complement the FRC consultation paper Joint Forum on Actuarial Regulation: A risk perspective. 

This article appeared in our February 2015 issue of The Actuary .
Click here to view this issue

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