Annuities could see a renaissance once interest rates rise and as defined benefit (DB) pension pots continue to shrink, Tom McPhail has said.
Speaking at a panel discussion at this year's Morningstar investment conference, the Hargreaves Lansdown head of retirement challenged the view that annuities may be completely out of the picture thanks to the success of pension freedom.
Research from Royal London Asset Management found in March that advisers were split on the relevance of annuities in today's marketplace, with more than half (54%) poised to discount them from their pension planning.
It followed a trend detected by the Financial Conduct Authority (FCA), which reported in February that advised sales of annuities had dropped nine percentage points in the last year, to a 12-month low of 33% between July and September 2016.
But McPhail (pictured) argued interest rates were likely to go up again at some point, which would make annuities appealing once again.
The firm had already flagged a 10% year-on-year rise in interest in annuities in January.
McPhail said: "Annuities are not just an investment, for many they are still a longevity risk insurance contract.
"Coupled with rising interest rates, annuities might see something of a renaissance further down the line, as people look to them to fill the gap of that guaranteed income requirement."
Besides, McPhail added, DB pensions would be less generous going forward as the number and value of DB transfers were currently at their peak and would drop thereafter.
Tax Incentivised Savings Association (TISA) deputy chairman Tony Stenning had argued annuities could have been more successful had there been more transparency on how they were priced and had interest rates been higher.
"Just because you've retired at a certain part of the economic cycle [were interest rates were low], this has really impacted you," he said.
He added not making annuities compulsory could have also helped their success.
'Slice and dice' retirement
Royal London head of policy Steve Webb meanwhile argued annuities did not meet consumer needs in early retirement.
"When you think of people's needs in early retirement, locking in that steady modest income isn't necessarily what they want or need - such as 'how do I pay off my interest only mortgage' and 'to enjoy my life while I can'," he said.
"However, pension freedom gives them the opportunity to ‘slice and dice' their retirement income," he added.
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