But Mr Patel argues the market does need to become more competitive and creative in order to prosper, starting with decent annuity rates to make the products more attractive to those considering other options.
“Perhaps an increased range of enhanced annuities, for instance, as well as the ones typically offered to smokers and those with serious illnesses,” he observes.
“Rates could be calculated and graded according to willingness to bear risk across several areas of life – a relatively reliable marker of life expectancy.”
Providing a bridge
He also points to a growing market for ‘bridge’ solutions – “an annuity-drawdown hybrid”.
Says Mr Patel: “These offer the flexibility of drawdown but with some of the guarantee of an annuity. However, they are currently only really attractive for those with sizeable pension pots.
"More could be done to widen their reach, particularly among certain groups, including those who intend to carry on working, perhaps in a reduced capacity, after they have drawn their pensions.”
There are some who fear the future is not quite so bright for the annuity space though, including Mike Morrison, head of platform technical at AJ Bell, who suggests the “natural forces of supply and demand [will] start eroding it”.
He continues: “Many providers have pulled out of the open market and most recently Prudential pulled out of the market altogether, probably because the demand has fallen away so quickly.
“Lots of surveys confirm that people still want a guaranteed income for life. A good pension freedoms market needs a good annuity market to allow the full spectrum of income opportunity.”
Like many, he believes the opportunity lies in using a blended approach in retirement, which he explains means “using part annuity to buy the minimum income and income drawdown for a flexible component… possibly moving to a full annuity as people get older”.
Future retirees
This may not make up for the fact the annuity market in the UK is now worth £4bn, down from £11bn before the pension freedoms.
The number of providers who have pulled out of offering annuity products is a worry for Natanje Holt, retirement expert at Bravura Solutions.
“That means people shopping around have less choice. This is an issue, but difficult to see what the remedy might be,” she admits.
“My bigger concern is not so much for today’s retirees, but I am worried for people looking to retire in 20 years’ time, when most retirees will only have a defined contribution pension and not the luxury and certainty of a defined benefit income that so many people are still benefiting from today.”
