Record-high rates have helped put annuities back on the retirement planning agenda. Jon Scannell – Head of Annuity Distribution at Standard Life, says the real value lies in how annuities work alongside drawdown to create more robust retirement income strategies.
For much of the decade following Pension Freedoms, annuities were often treated as little more than a compliance exercise.
Many paraplanners will remember including annuity comparisons within suitability reports, only for the recommendation to ultimately default to drawdown.
Today, the landscape looks very different – higher rates, increasing regulatory focus and evolving retirement needs have propelled annuities back into mainstream retirement planning.
But according to Standard Life’s Jon Scannell, the industry’s biggest mistake would be viewing annuities as a replacement for drawdown. Instead, the future lies in combining both.
The rate story
The first driver behind renewed interest is impossible to ignore – the rates.
“The rates are higher than they’ve been since 2008. They’re at an all-time high,” Jon told us.
He went on to share some data, saying that only a few years ago, a healthy 65-year-old might have secured an annuity rate of around 4%.
Today, the numbers are dramatically different.
Jon shared: “A healthy 60-year-old is around 6.85%. A healthy 70-year-old is over 8%.”
Those figures understandably capture attention. For paraplanners used to discussing sustainable withdrawal rates around 4%, today’s annuity market presents a very different proposition.
Clients who may previously have dismissed annuities are now seeing guaranteed income levels that demand consideration.
Jon describes today’s market as “insanely different” and believes many advisers are still unaware of just how far rates have moved.
Not a standalone product
Jon is clear that focusing solely on rates misses the bigger picture.
Historically, retirement planning was often framed as a choice between annuity and drawdown.
Modern retirement planning increasingly treats them as complementary solutions.
“Drawdown and annuities need to coexist. They need to be used together.” Jon highlighted.
Many firms are now exploring blended strategies, using annuities to secure essential expenditure while maintaining drawdown portfolios for discretionary spending, future growth and greater flexibility.
This moves the conversation beyond product selection and towards retirement income design.
It is no longer a question of whether annuities or drawdown are better. The challenge is determining how each can contribute to achieving the client’s objectives.
Challenging default recommendations
The growing interest in annuities has also highlighted an important role for paraplanners.
Jon noted that some advisory firms are revisiting established retirement propositions and asking whether drawdown has become the default recommendation in situations where alternative solutions may be more appropriate.
Importantly, paraplanners are often driving those conversations.
“Paraplanners don’t have those preconceived ideas,” he said.
Because paraplanners are typically focused on research, suitability and client outcomes rather than assets under management, they can play a valuable role in challenging assumptions and ensuring all reasonable options have been explored.
That role has become even more significant in a Consumer Duty environment, where firms must demonstrate they are delivering good outcomes and considering appropriate alternatives.
Busting old annuity myths
The annuity renaissance is also forcing the profession to revisit some long-standing misconceptions.
Many clients still believe that if they die shortly after purchasing an annuity, the provider keeps all the money.
Jon said that these assumptions often stem from a lack of understanding around the options available.
Modern annuities can incorporate guaranteed periods, value protection, joint-life arrangements and escalating income options.
As awareness of these features grows, many of the historical objections to annuities begin to lose their force.
For paraplanners, understanding these available options is key to ensuring recommendations accurately reflect both client needs and the capabilities of the products being considered.
Digital progress
The annuity market is also undergoing a technological transformation.
Following years of underinvestment after Pension Freedoms, providers are now focusing on digitisation and improving adviser experiences.
Standard Life reports that around 16% of its annuity business is now submitted through digital routes.
“We’re working hard to to make that journey as slick as possible,” Jon confirmed
The aim is to create a smoother experience for advisers and paraplanners while reducing administration and increasing visibility throughout the application process.
The aspiration across the industry is greater consistency, enabling firms to place business digitally regardless of the provider selected.
A broader retirement conversation
The resurgence of annuities ultimately reflects a wider shift within retirement planning.
As clients face longer retirements, increased uncertainty, rule changes and goal posts constantly moving, advisers are recognising that no single solution works for every circumstance.
Drawdown remains enormously valuable – and so does an annuity.
The challenge for paraplanners is ensuring neither is dismissed too quickly.
The future of retirement planning is unlikely to be annuity versus drawdown.
Instead, it will increasingly be about blending security and flexibility in a way that reflects each client’s individual needs.
Main image: puzzle, combine, vardan-papikyan-JzE1dHEaAew-unsplash
