10th February 2011

Annuitas: Where a Specialist adds real value

The need for an annuity specialist has never been greater with impending legislation likely to have a serious effect on already decreasing annuity rates. Rob Tinsley, Head of Retirement Strategy, Origen Financial Services, investigates a relatively underused opportunity for those approaching retirement.

In recent weeks, we have seen annuity rates sink to their lowest level for 20 years, thanks to increased longevity, falling bond yields and concerns over the impending ‘Solvency II’ legislation. If this comes into effect, we could see annuity rates plunge even further, with current estimates of between 10 to 15 per cent.

Why annuity rates could reduce significantly

If Solvency II legislation comes into full effect, life companies will be required to value their annuity liabilities using Government gilt rates, rather than using corporate bonds, which they currently favour as they give a higher yield.

This means life companies will need to hold considerably more capital to meet their annuity pay-out liabilities - in turn leading insurers to reduce the annuity rates they pay.

So the future looks decidedly uncertain for annuities and this is going to be an unsettling time for those approaching retirement. You will need to think carefully about your options, as deferring your annuity purchase in the hope that things will improve may not be a sensible approach. You may decide to pre-empt the changes and purchase your annuity before 2012 when Solvency II is due to come into effect. In any case, getting advice on the solutions available is going to be increasingly important.

Are you eligible for an enhanced annuity?

Many people do not appreciate the benefit they can gain from enhanced annuities, but it is estimated that 50% of those retiring are eligible for some form of enhancement. Currently only 16% of annuities have been bought on an enhanced basis, therefore many people are missing out on far better annuity rates than they are currently receiving.

A number of factors are considered when assessing your eligibility for an enhanced annuity including your health, lifestyle, smoking habits and in some cases, the postcode area you live in. Insurers consider whether these factors have an impact on your life expectancy and this could mean receiving a significantly higher income. In some cases, a 30-40% increase is achievable.

Origen is committed to helping as many people as possible to achieve the best annuity rate available for their circumstances. Over 40% of our clients have already benefited from increased rates, but if an enhanced annuity isn’t available to your client, you can still get the best rates for them by exercising the ’Open Market Option’ on a whole of market basis through Origen Retirement Solutions.

Rates can vary enormously from provider to provider, so we help you and your clients by doing the shopping around for them quickly and efficiently on a truly whole of market basis.

Example case study

Mr Walker retired at age 65. His pension fund size was £100,000 and he was looking to purchase an annuity.

His pension provider was offering him an annuity of £6,482.40 a year. Mr Walker came to us to see if we could source a better rate. Through our research, we discovered that although his provider was not offering the lowest rate available, there were a number of providers offering significantly more.

We ended up securing him a rate of £6,933.60 a year, £451.20 more than his existing Pension Fund Provider and £861.60 more than the lowest Provider on the market.

If Mr Walker had have been a smoker, his annual rate would have been £938.16 higher than he was originally quoted.

Annuitãs are committed to helping as many IFAs as possible in achieving the best annuity rate on the market.  It is not unusual for us to get a better rate from even the ceding provider if we gather the relevant lifestyle and health details. Last year over 40% of our clients benefited from these increased rates.

Annuitãs is a trading name of Origen Financial Services, one of the largest annuity specialists in the UK and a market leader in the Impaired and Enhanced sector.

For more information about our IFA Retirement referral  Service, click here

Or contact Rob Tinsley
Head of Retirement Strategy
Tel: 0844 209 3160
Email: robtinsley@origenfs.co.uk

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