Greater innovation is needed in annuity products and wider understanding by consumers of the choices...
Greater innovation is needed in annuity products and wider understanding by consumers of the choices available is essential, according to Billy Burrows, marketing director of Prudential Annuities.
Burrows said that falling annuity rates, down more than 40% since 1990, had contributed more than anything else to the perception of them as bad value.
The way pension funds are converted into income is flawed, with annuities perceived as representing poor value and generally misunderstood, he said.
Many consumers are no worse off when retiring now than if they had secured an annuity during the period of high rates a few years ago, he said, noting some were actually better off. Burrows added that annuities offered a stable option for drawing income.
If there were no annuities, he said, investors would have to draw from their pension funds.
He said: "It is true annuities are not flexible and there is no lump sum benefit on death but there is no obvious alternative other than drawdown for high net worth individuals."
Listing Norwich Union, Standard Life, Canada Life and Stalwart as providers who have or will launch alternatives to conventional annuities, he said that increased innovation in the annuities market was the direction in which the industry should move. His remarks followed an address to the NAPF conference by Mike Orszag of Birkbeck college, who criticised the annuities industry for its sluggishness in adjusting rates and for exploiting its monopoly by overcharging.
Orszag said: "Some waiting several months or more to adjust their rates. This gives many consumers the impression that the annuities market is a cartel."