Standard Life is launching an annuity as interest rates recover, causing interest rates to flare up again among savers

Standard Life has launched an annuity deal after a strong recovery in retirement income they can buy, tempting many older savers to take a second look.

This would give a 65-year-old with a £100,000 pension pot, living in a midband zip code, about £7,000 a year, with no post-purchase warranty or inflation protection.

Annuities provide guaranteed income until you die.

But they’ve been shunned for years because of poor rates and restrictive terms, and after they gained a bad reputation following scandals surrounding annuity sales.

The 2015 pension freedom reforms prompted most savers to keep their money invested and live on withdrawals instead, despite the risk in the financial markets that came with it.

However, the recent series of rate hikes allows annuity providers to afford to fund much more attractive deals, leading to a resurgence in sales.

Standard Life stopped selling annuities in early 2017. It is now under a different ownership, as part of Phoenix Group, and claims to be the first new provider to enter the annuity market since pension freedom legislation passed eight years ago.

Annuity offers depend heavily on personal circumstances, including health, but Standard Life provided the following examples of the offers it could offer to a 65-year-old living in a mid-range zip code.

In the joint life cases, it is assumed that the spouse is the same age as the annuitant.

Single, level (so no increases in line with inflation), no guarantee period after purchase: £7,002

Once Life, RPI Inflation Link, Five Year Warranty Period: £4,414

Joint life; 50 per cent income after first death, level, no guarantee: £6,562

Joint life, 50 per cent, 3 per cent increase per annum, no guarantee: £4,661

In terms of how that compares to the wider market, industry figures show that £100,000 can now buy a healthy 65-year-old a pension income of around £7,320 a year, with no inflation protection and a five-year guarantee. – protection of your money immediately after purchase.

For the same amount, the same person with a spouse three years younger could buy a joint annuity with inflation protection but no guarantee that would pay £4,840 a year, according to the latest data from Hargreaves Lansdown (see below).

Recent research shows that, despite the improvement in interest rates, people over fifty still have doubts about annuities.

One in five thinks the products are of little value, about 44 percent find them inflexible and 45 percent think they are risky if you die earlier than expected.

Annuity providers try to address these concerns by offering options such as a warranty period in case you pass away shortly after purchase, and a “retirement account” version that allows you to switch earnings on and off.

Standard Life says annuity rates rose 20 percent in the year to June, and the new deal is aimed at customers aged 55 to 75.

The offer includes the following.

– Rates for healthy people and increased rates for people with medical conditions

– Options for inflation protection up to 10 percent, or linked to RPI inflation, or RPI limited to 5 percent

– Guarantee periods of up to 30 years, where income is paid out to beneficiaries or family members for a fixed period of time in the event of your death

– Value protection of up to 100 percent of your purchase money, less any income you received, which is paid out to a beneficiary as a death benefit

– Payment options per month, quarter, half year or year, in advance or afterwards

– Minimum purchase of £10,000, net of fees, and no maximum

– The annuity is available through financial advisors, brokers and price comparison sites.

Standard Life says about the costs: ‘No explicit costs are paid by the customer if the customer purchases the annuity without advice.

‘Annuity income includes all costs associated with setting up the annuity, including costs for new business, acquisition costs such as marketing and commissions paid to intermediaries.

‘Any commission payable to the intermediary is always disclosed to the client in full and generally ranges between 1 and 3% of a client’s assets.

“For annuities purchased through an advisor, advisor invoices are facilitated and in this case a fee is agreed in advance between client and advisor.”

Standard Life adds that its approach to costs is in line with industry practice.

Claire Altman, managing director for individual retirement at the company, says: “In an uncertain economic climate, where three-quarters of people say they want income security in retirement, the guaranteed income that an annuity provides is likely to be an ideal solution for many.

“I think people are starting to see this value, with the first quarter of this year proving to be the highest quarter for annuity sales since the retirement liberties.”

The shake-up over retirement freedom eight years ago has prompted most savers to keep their money invested, but this involves portfolio monitoring and exposure to the risks of the financial markets.

Find out how to invest your retirement, investment and withdrawal plans versus annuities, and how to combine retirement withdrawal with annuities.