When retirement is occupying your mind

Scott Woods.

Scott Woods.

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Money Matters by Scott Woods

Once a client is ready to retire, typically they will be focussed on one thing – getting the highest possible income in retirement – and for the majority that means starting with an annuity.

However, with the range of potential solutions now available and numerous choices to make within each solution, the situation is far from simple.

Martin Wheatley, of the FCA, said that “the need to get an income in retirement unites us all. But once you’ve bought an annuity you can’t change your mind”. But the difficulty arises when the client has to decide which solution is right for them.

Historically one of the great myths surrounding retirement provision is that the Open Market Option (OMO) is simply about selecting the highest annuity income currently available.

However, by seeking advice, retirees can dispel this myth through recognising that the OMO is actually first and foremost about choosing the most appropriate solution at retirement.

The level of income is clearly important but so too is the timing and shape of that income.

For many clients they may well be better off if they do consider alternative options – which is where I believe professional financial advice comes in.

Similarly, one area of consideration which is becoming increasingly important is the subject of enhanced annuities. The approach taken by a product provider (in particular when it comes to the level and depth of underwriting that takes place) can make a huge difference to a client’s income in retirement.

Anecdotal feedback puts this difference at typically somewhere between five per cent and 10 per cent but on a case by case basis it could be much higher than this.

The FCA’s analysis around seeking an enhanced annuity estimates that consumers of some firms could greatly increase their annual income by purchasing an annuity on the open market.