Ian Sayers blog: If an annuity were a home, a castle might become a prison
Ian Sayers, Director General, AIC, on pensions reform.
Many of us think about that dream move when we retire. Something ‘chocolate-boxy’ buried deep in the countryside, perhaps, away from the rat race and the pressures of having to write 400 words for a topical blog.
And for some, that works out just fine. But for others, once the first flush of novelty has worn off, the reality of having to spend 15 minutes in a car when you run out of milk sees them rushing back to the warm embrace of city life.
Now imagine that you were told that, when you retired, you could move if you wanted, but that the decision was final. All of a sudden, that dream of a new life would begin to look more like a nightmare. You could stay put, and spend your golden years wondering ruefully what you have missed, or you could move, and regret the day you fell for the ‘grass is greener’ trap.
From the research we published this week, this is a dilemma shared by many people considering annuities for retirement. When asked what would discourage them from buying an annuity, I was not surprised to see concerns about inflation and wanting to hand down assets on death figuring highly. What did surprise me was that 67% said it was the fact that they couldn’t cancel an annuity at a later date.
A house and a pension are the two biggest financial commitments most people make. And with such a financial investment, feeling that you need to decide ‘once and for all’ what to do with a lifetime of hard-earned savings is a daunting prospect, particularly as 60% think this is a decision they might have to live with for at least 20 years.
Not surprisingly, then, 44% were more positive about pensions as a result of the reforms and, in the coming months, the AIC will be looking at how investment companies might help pension investors not just to build a fund during their working lives, but also to provide them with an income in retirement.
Of course, some will decide that an annuity is still the best option for them. But even for those that do, many will feel happier simply knowing that this is a decision they are not being forced to make.
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