UK - NAPF CONFERENCE: Schemes can give some members "better value" pensions by offering impaired life annuities, Watson Wyatt told delegates.
Partner Mike Wadsworth said if scheme members annuitise benefits later than normal retirement, at 70 for example, it can provide better value for money.
He said: “Annuities bought at normal retirement ages appear poor value, since the reward for annuitising is small – 1% to 2.5% above corresponding long bond yields.”
He also warned: “At later ages the risks associated with not annuitising are large – the distribution of deaths around average lifespan is proportionately greater than for younger lives.
“Not being annuitised at, say, age 85 is equivalent to a lost investment return of over 10% per annum.”
Wadsworth added that many products traditionally associated with annuities – such as inflexible income – can also be enhanced through product design.
“Some examples of more flexible products have come on to the market in recent years, such as those from Canada Life and Prudential.”
But some recent attempts to provide more flexible products were hindered by Inland Revenue rules.
“The proposals issued in December 2002 removed the obstacles, but unfortunately the DWP Green Paper appears to be insisting on limited price indexed annuities for defined contribution pension schemes.”
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