IFAs warned over cost of delaying annuity purchase

Just Retirement, the retirement solutions specialist, sent a stark warning to IFAs to think twice before advising clients to defer buying an annuity because of current economic conditions.

Data compiled by Just Retirement reveals that a 65 year old retiree, with a fund of £50,000, who deferred their annuity purchase by one year, could take 13 years to recoup the lost funds.

Even worse, if interest rates fall by 1% over the period, the income from the annuity purchased after deferment of one year could fall to £3,703, meaning it would take 184 years for the client to get their money back.

Nigel Barlow, Head of Retirement Income Solutions at Just Retirement comments: “In uncertain economic conditions, IFAs may feel it wise to advise their clients to defer buying an annuity – especially if their pension funds have fallen in value over the past few months. They may feel that by leaving the funds invested they will recover, so the client can take advantage of a higher annuity at a later stage.

“However, while this may be the right decision for the client, it is also a risk and depends on how certain the IFA is that the markets will recover during this period, and also how certain they are that annuity rates will improve.

“For example, in December 1999, the FTSE peaked at 6930. It has not reached this level since, with the latest peak being 6752 in June 2007. Over the same period annuity rates for single males declined by almost 20%, with factors such as increasing life expectancy and falling interest rates being key influencers.”