The cumulative effects of negative global and UK-specific events have pushed up long-term interest rates which are hardwired into annuity rates.
Looking at the second half of 2022 and the first half of 2023, we have seen annuity rates rise by over 20%.
No surprise then that Money Marketing was quick to report Canada Life UK’s record-breaking annuity sales in the first half of 2023, as demand for guaranteed retirement income products continues to rise.
The insurer said in its half year results that new business sales for individual annuities were £441m in H1 2023, meaning they’ve doubled from £220m for the same period in 2022. It said May 2023 was a record month for individual annuity sales, with over £100m in new business in one month.
Just Group also announced its individual annuity sales were well up in its H1 2023 results, back in July. Just’s annuity sales were up 54% on H1 2022 to £0.5bn.
The result is that a 65-year-old retiree with £100,000 of retirement savings can buy a guaranteed annual income for life of over £7,000 – a 7% yield.
However, I spotted a potential problem deep in the figures.
According to the Office for National Statistics, just over half (50.4%) of the 918,000 65-year-olds living in the UK in mid-2020 were either married and living together, or in a civil partnership and living together. Many other 65-year-olds have other dependents living with them, or close by.
Yet, according to the Association of British Insurer’s latest analysis of annuity sales, only 32,000 of the total of 69,000 annuities so far bought this year were joint life, equating to just 46% – indicating that perhaps 2,760 customers so far this year may have purchased a single life annuity when they actually needed a joint life equivalent.
With two lives considered, it’s twice as likely some enhancement over ‘standard’ rates will be offered by the insurer
These annuitants may have ‘forgotten’ to tick a box to confirm they need to pass all or part of the annuity benefit onto a spouse, partner or other dependent (if they die earlier than them).
This may happen because they are chasing the best possible annuity rate and the best rates are generally the non-index linked, single life annuities. This issue can be easily missed if retirement income is being sorted in a rush following a quick decision to leave work.
Advisers will know that one annuity is seldom the entirety of retirement assets. It can be perfectly right and proper to buy a single life annuity if holistic advice has shown the dependent partner is more than adequately looked after by other assets.
Don’t forget about your client’s spouse or partner when looking for annuities
Nearly all annuities sold today consider the applicant’s medical history. The industry has worked hard to make this the norm. With a joint life annuity, both partners should fill in the health questions and, with two lives to be considered, it’s twice as likely some enhancement over ‘standard’ rates will be offered by the insurer.
Joint life annuity rates might well be surprisingly favourable. So, don’t be tempted to forget about your client’s spouse or partner when looking for annuities while the current high rates continue to keep them firmly on retirement income shopping lists.
Adrian Boulding is director of retirement strategy at Dunstan Thomas
