As a platform, we take great pride in all that we've achieved since opening our doors for business nearly six years ago. We’ve
Is the annuity set to rebound?
The annuity was once the bedrock of British retirement planning and a natural (and obligatory) alternative for those without final salary pension schemes. After all, why wouldn't you want the insurance of a guaranteed lifelong income? Of course, in the last decade, this long-standing premise has been smashed to smithereens as a result of a rapid decline in annuity rates.
For example, in 2008, a 65-year-old could buy a £100,000 single-life annuity and receive an annual income of about £7,800. By April 2015, however, such a policy paid an income in the region of just £5,400.
In fact, in the last few years, annuity rates have continued to sink further. At present, a £100,000 joint-life annuity for a couple aged 65 and 60 (reducing to two-thirds on the death of the first annuitant) would offer an annual income of roughly £4,500. Yet even four years ago, it would have yielded a slightly more-palatable income of around £5,300. This represents a staggering drop-off of 15 percent.
Why have annuities tumbled?
The former, whose path of destruction extended to many realms of economics and finance, resulted in a severe credit crunch. In turn, this led to the Bank of England (BOE) embarking on a vast quantitative easing programme. The BOE then used this increased money supply to purchase investments such as gilts and bonds in bulk, which depressed yields.
However, because insurance companies invest funds earmarked for annuities cautiously, they too choose such 'safe' investments, and, as a result, these falling yields have been passed on to annuity buyers.
The other shock to the system was then-Chancellor George Osborne's announcement at the 2014 Budget speech that, as of the following spring, "No one will have to buy an annuity". Prior to this, annuitising had effectively been compulsory for all individuals when they reached retirement age. However, the 2015 pension freedoms have removed this obligation, and anyone with a pension can opt for pension drawdown instead (whereby the individual can choose how much income to take, and where to invest the remaining funds).
With annuity rates in the gutter, it comes as little surprise that many people have subsequently chosen to go down the drawdown route. In the last decade, annuity sales have nosedived from around 400,000 per year to just under 80,000 – with the majority of this decline accounted for in the last few years. A slew of providers has since exited the annuity market too, including some big-name insurers. As a result, reduced competition has exerted further downward pressure on annuity rates.
So is the annuity headed for the abyss?
No doubt about it, annuities have taken a battering in recent times, and there haven't yet been any definitive signs that the slide has halted. However, there are a few reasons to harbour the legitimate belief that the tide is set to turn and that more people may revert to this former ever-present as an investment of choice.
Firstly, the recent Bank of England rate increase - coupled with the likely scaling back of quantitative easing - will place upward pressure on the yields of government bonds and gilts, which should feed through to annuity rates. And the fact that further rate hikes are forecast in 2018, largely due to robust inflation, should compound this effect.
The second key determinant will be that of stock market performance. While many pensioners on drawdown schemes will have benefited from a booming stock market over the past 18 months, many experts are predicting a correction in the near future. Should this transpire, attitudes may change, and those in, or approaching, retirement may well look to shift their portfolio to incorporate safer bets like a guaranteed lifelong income.
And finally, let's not forget that the annuity market in 2017 was still estimated to be worth roughly £4bn (around £10bn for bulk annuities). So, this particular investment class certainly isn't going to disappear off the map anytime soon, and still plays a significant role in British retirement planning.
Keep it in mind
The weaknesses of annuities, such as poor returns and a lack of flexibility, are there for all to see. However, there aren’t currently many other ways to earn a guaranteed income for life, and for many pensioners who are more risk-averse, this can deliver the peace of mind they need.
That's not to say that annuitising your entire pension pot is necessarily the best option. For some, it may be preferable to annuitise a portion of your portfolio and invest the remainder in a variety of other asset classes (such as peer-to-peer lending). Either way, it is this ability to pick and choose which is, in itself, surely a force for good, and, if used sensibly, an excellent enabler to ensure that we can all maximise wealth and financial security during our golden years.
Our website offers information about saving, investing, tax and other financial matters, but not personal advice. If you're not sure whether peer-to-peer lending is right for you, please seek independent financial advice, and if you decide to invest with Lending Works, please read our Key Lender Information PDF first.
Since opening our doors back in 2014, we’ve always prided ourselves on living and breathing two key principles at Lending Works: innovation, and putting the customer first in everything we do.
With the retail sector enduring its fair share of challenges, companies are looking at new ways to attract customers, and drive conversion. In an overcrowded, dog-eat-dog marketplace, with behemoths such as Amazon flexing their muscle, it’s easier said than done.
On 4 June 2019, the Financial Conduct Authority (FCA) released its new regulatory framework for peer-to-peer lending (P2P); a Policy Statement known as PS19/14. As you might imagine, it's a document which, following a three-month consultation, is a hefty read of no fewer than 102 pages.
In a difficult climate, customer acquisition and lead generation present stern challenges for UK retailers, and a great deal of marketing spend invariably gets directed towards getting feet through the door.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
In the 1970s, it was standard fare for governments to manipulate interest rates, particularly in the run-up to a general election. Lower borrowing costs keep a lid on unemployment, and stimulate economic growth.
For close followers of financial forums, one oft-trotted line among brokers is that fixing one's mortgage has seldom been to the retrospective benefit of the homeowner in the past 25 years.
One of the hallmarks of the cash ISA's success following its launch two decades ago was its simplicity, and it has undoubtedly proved a popular choice among UK savers.