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Lottery of timing to buy annuities

If markets get back to the 5,000 level, then a large number of people should get buying an annuity “over and done with” William Burrows Annuities director Billy Burrows has urged.
Speaking at Money Marketing’s annuity round table, Burrows said that his company is investigating a number of exit strategies for people who may have seen investments suffer by as much as 15 to 20 per cent.

“We are doing a bit of work on various strategies for people whose funds are 15 to 20 per cent lower. For those with a bit of money, there are some interesting exit strategies. They might use the flexible annuity to do phased retirement.”

He also believes there is a risk that some investors will simply do nothing in the hope of a market recovery.
He said: “It is dangerous for people who just sit back and hope the market recovers because it could all go south again. People should convert their pension fund into annuities over a period of time when there are good buying opportunities.”

“The people most affected are those who need to buy an annuity but have kept themselves in a managed fund and those are 20 per cent down. If the market got to 5,000, many people would be better off buying an annuity and getting it over and done with.”

Thinc group director of research David Cartwright said: “It is a timing lottery. The variable rates have been pretty stable, it is the pension pot that varies. Knowing what you can physically buy in that last four or five years before retirement needs a lot of close guidance.

“You almost need to know where that client is going to go beyond those five years. Drawdown may be different but you do not want to be in a fund that is 60 per cent equities if you are going to buy an annuity.”

Burrows said: “You cannot really plan your investment strategy pre-retirement without some idea of what you want to do at retirement.”

The Retirement Adviser director of retirement planning Nick Flynn said: “Taking money from a falling fund is very painful and there are a lot of people stuck with bills to pay. If they can reduce their income, then that is all well and good.”

Annuity Direct director Stuart Bayliss added: “People are amazed when you show them how much they have to get back to as a percentage – the fact you have got to go up by more – and then you show them by how much and it is horrid.”
Bayliss said that in the last month he has seen several clients opt for a purchased life annuity.

He said: “Purchased life annuities have increased. We did six last month. That is people choosing to do it themselves. People are saying they do not want to take the tax-free cash. You have to suggest a PLA.

“They are people who have tended to be in cash already, conservative investors. They are liking the idea of the lifetime certainty rather than the bank account.”

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