Volatile stock markets act as a sharp reminder that keeping pension money invested through income drawdown is not a one-way bet. Given recent events, many retirees either considering or already in drawdown are likely to be seeking safer havens until the dust settles.
Retirees tend to be financially conservative and cautious with pension cash even if they are happy to play the markets with other savings. The difficulty they face is finding a pension income product capable of protecting their funds against financial market turmoil but which still gives the potential to move back into the market at a later date.
Purchasing a lifetime annuity would guarantee the income but comes with a lifetime lock-in that removes any possibility of reacting to future events. Those determined to keep control of the capital will have few options but to remain in income drawdown and try to minimise the investment risk. This opens them up to switching charges on top of the ongoing management costs. In the few cases where guarantees are offered, these come at a price many clients and their advisers would consider too high.
Living Time's launch of fixed-term annuities in the last year has been timely because it offers an important alternative strategy to cautious investors who want security while keeping their options open. The plans are low cost with no ongoing management charges and the income rates are currently very competitive when compared with an equivalent 'best buy' annuity. Uniquely the plans offer guarantees on both income and capital during the term of the plan, which must be a minimum of five years, and at maturity return a lump sum that allows retirees the flexibility to pick from the full range of retirement income options available on the market that best suits their circumstances.
The bull market that started in March 2003 has seen the longest run of rising share prices of the last 40 years by some margin. Many of those now in income drawdown will be sitting on large portfolio gains that they naturally want to protect. Switching into a fixed-term annuity will give peace of mind while still allowing a move back into the financial market at a later date if they so wish.
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