Lowe adds: “That requires taking more investment risk. At some point, it makes sense for a client seeking the highest income with the lowest investment risk to switch drawdown funds into the annuity, although the timing and proportion of the fund they need to switch will vary from case to case.”
Claire Trott, divisional director of retirement and holistic planning at St James’s Place, likewise says it can be harder to determine the type of annuity needed when a client is younger.
“Later in life you may already have established a better understanding of income requirements in retirement, and of course these will change as you age and could increase significantly later in life due to care requirements," Trott says. "A partner may have predeceased you, or it may be clear that they are likely to, so a spouse’s annuity isn’t needed.
“Again later in life, inflation-proofing may not be as important, as you aren’t dealing with an annuity that has been paid over such a long period. The cost of inflation-proofing can be significant and as such, although a great protection, it can significantly reduce the starting pensions.”
How might annuities be suitable for vulnerable clients?
With savers staying in drawdown for longer after pension freedoms, Vince Smith-Hughes, director of specialist business support at M&G Wealth, says an important factor to consider is the increasing tendency to advise older clients more frequently.
Tait at Intelligent Pensions notes how many clients become less able to manage their affairs as they age, and a guaranteed income they do not have to make any further decision about may become more suitable.
“However, it is possible to appoint someone else who they trust to make these decisions for them, and we strongly recommend that our clients set up a Power of Attorney while they are able,” she says.
“This means that they can still have access to variable income payments, which could be suitable if there are changes in expenditure due to reduced activity or, conversely, increased spending on healthcare.”
Besides financial needs changing throughout retirement, Trott says that vulnerability can instigate a move from drawdown to an annuity, when a need for stability and reduced decision-making prompts a need for more regular income.
She adds: “This doesn’t necessarily relate to age but could be anything, including the death of a partner, or their worsening health, both mental and physical.
