ACH: Non-advised annuities to increase

21 September 2011

Independent financial advisers (IFAs) could be set to walk away from the annuities market, leading to the number of non-advised sales increasing in the coming months and years.

This is according to the deputy chairman at the Annuity Clearing House (ACH), who stated that the financial products have ceased to be profitable for IFAs, despite the fact they provide a range of advantages to those planning their finances for their retirement.

Peter Quinton explained how 90 per cent of pension pots have a value of less than £50,000, which means IFAs are losing interest in the annuities sector.

Speaking to the Financial Times, he said: "IFAs will be looking very carefully at the processing costs part of their business and will be understanding more what it is costing them to run through non-profitable business."

Mr Quinton warned that a result of this is consumers will begin purchasing annuities without taking professional financial advice beforehand to ensure it is the right option for them.

He pointed out the level of expertise has increased among IFAs and highlighted the fact they will therefore begin to steer clear of products that do not make them any money.

The ACH deputy chairman also told those coming up to their retirement that they are set to face a "tricky" time as they seek to balance their financial situation after giving up work, due to factors such as inflation of close to five per cent and record low interest rates of 0.5 per cent.

Mr Quinton said: "They haven't saved enough and won't get enough and we have got a market in the condition it's in. It's difficult times."

He noted annuities are a growth market at the moment but said many of the products will be sold to older people who have been unable to access financial advice before making a final decision.

This comes shortly after a report published by the Sydney Morning Herald highlighted the fact annuities can be a more flexible financial option for those in their retirement years.

Tom Dalton, 77, told the newspaper how he opted for annuities in order to protect his family from the "vagaries" of the market, while the managing director of research firm DEXX&R, Mark Kachor, stated they can be a good selection for those who value "freedom from care".

Posted by Alison Stephenson