Guaranteed annuity sales in ‘quiet revolution’ post-pensions freedom – Canada Life

Sales of ‘money-back’ guaranteed annuities accounted for more than one in ten (15%) of plans sold by Canada Life in the past 12 months pointing to a “quiet revolution” in the market.

The provider said the annuities offer the client the choice of 100% value protection or longer guaranteed income periods typically 25 years or more. Before pensions freedom was introduced in 2015, providers could only offer up to 10 years, it explained.

Analysis of its sales figures for the past 12 months pointed to a “quiet revolution” in the market with the option becoming increasingly popular.

Canada Life director of retirement income Nick Flynn said the option also addressed the “elephant in the room” that the insurance company keeps clients’ money if they die early.

He said: “There has been a quiet revolution going on within the annuity market, driven by demand post pension freedoms for people to get their money back whatever happens in the future. These ‘money-back’ guarantees not only provide the risk-free certainty of income but address the elephant in the room that the insurance company keeps your money if you die early.

“A financial adviser or annuity broker will be best placed to help you understand the choices available, getting the most value from your pension savings while also ensuring your loved ones are protected, whatever the future may bring. 

“It’s important to note that many of these options are not available from many existing insurers, so make sure you use the open market option not only to get the best rate available but also consider the full range of benefit options.”

Canada Life said choosing the right guarantee alongside buying an annuity can add significant value as clients can not only guarantee a lifetime income but if they die early, an income stream to beneficiaries, which can far outweigh the original annuity purchase value.

Case study

Mark, 65 is looking for a lifetime income. Mark wants to ensure Susan, who is 62, is looked after when he dies. Mark has a pension fund worth £140,000 to buy an annuity (net purchase price after he takes his 25% tax-free).

Based on having no medical conditions his options are:

BasisAnnual incomeMaximum death Benefit
No guarantees£6,623
50% dependent’s income£6,014
100% value protection£6,373£140,000 (remaining balance paid as a lump sum)
5-year income guarantee£6,610£33,050
10-year income guarantee£6,560£65,600
15-year income guarantee£6,399£95,985
20-year income guarantee£6,231£124,620
25-year income guarantee£5,975£149,375
30-year income guarantee£5,615£168,450

Source: Canada Life quotes 12.07.2021, for illustrative purposes only