Why are people still frightened of annuities?

There are a number of reasons why people shun annuities. 1)A strong desire to be able to access your savings and investments as a lump sum whenever you need and for whatever reason 2) The fear of dying at any time and not leaving a legacy to your loved ones and children 3) A feeling that investments can offer similar returns without the need to give up capital. 4) Mistrust of life insurance companies 5) Lack of flexibility to switch your income on and off.

Financial planning is crucial here and it's important to take advice before any purchase. For the wealthy, annuities continue to make little sense even at these interest rates. Why opt for a inflexible taxable income if you don't need it? For others with fewer resources available, a guaranteed lifetime income covering basic needs on top of the state pension may well be the right solution

The common perception is that annuities died because of low interest rates. In reality, they died because George Osborne enacted pension freedoms. For most, an annuity would be the second largest purchase in their life, after buying a home. I see a lot of quotes get thrown around about people's concern over the estate they leave their children. From my experience, people's main concern seems to be the legacy they leave their partner. A lot of annuities die with the main beneficiary, and those that do not come with a lower annuity rate. In comparison, a flexible access pension will be passed to the surviving partner (or indeed, anyone) at the full value, and free of income tax if they die before 75.

For the wealthy, the ability to blend your income with other assets, coupled with the inheritance tax-free position of a pension, make avoiding annuities no brainers.

For those in less fortunate positions of course, increases to annuity rates represent a great opportunity.

Annuities have had a bad reputation in recent years. The low interest rates available has definitely had an impact on how many people have been willing to put their funds into an annuity.

However, there are other reasons why people approaching retirement have been wary of putting their funds into annuities.

Many customers find them to be complex and withdrawal fees and surrender charges definitely play into this.

In the last 15 years or so many people who are approaching retirement have enjoyed the control they have by leaving their funds in drawdown and taking funds as and when they need them.

As with any investments Annuities have a place in the market and can provide a good option for a number of customers but making sure that you get the right from a financial advisor is incredibly important.

We see a lot of clients who end up with pension pots following divorce opt for drawdown rather than the security of an annuity. This can even be after they have argued in court about the security of another party's DB pension benefits. The rationale is invariably the fact that if something were to happen to them the lump sum would be "lost".
It takes a very good financial adviser to be able to explain the various risks and benefits of the available options, too often we see "advice" being client-led. A more cycnical individual might link the fact that drawdown can be more financially rewarding for the adviser due to ongoing advice charges...