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Summary
The paper deals with the choices available to individuals at retirement when deciding how to generate retirement income. One option, and the one most frequently used one, is to purchase an annuity but these are inflexible and are increasingly seen as poor value for money. Other options are generally available only for very large retirement funds and so have limited application. There has thus been considerable debate on ways in which the options available at retirement can be improved.
The paper looks at four different retirement options including the current annuity option and others not currently possible in under UK legislation. The options cover the whole spectrum of ways in which retirement funds can be converted to retirement income. Having defined four different options, these are now compared with the different needs and priorities which an individual may have when determing how to take their retirement income. Seven different priorities are identified.
The main part of the paper is a discussion on the extent to which each of the four options satisfies each of the seven needs/priorities. To ease comparison and as support to the text, there is a star rating of each option/need combination. These 28 star ratings are summarised in a section of the paper.Although targetted at a UK market, the options and needs are sufficiently general to have an application in any market. Indeed, in looking at the options, the authors looked at systems currently operating in other countries. The purpose of the paper was to open up debate in the UK on how best to extend the choices available on retirement. It is thus neutral in tone and does not favour any one option over any other. |
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David has spent his whole career with Norwich Union mainly in the UK but with a three year spell as resident actuary in Dublin. His career has seen work right across the Group, although mainly on financial management and associated issues.
Current responsibilities are for the actuarial management of all existing products across the life and pension range including both ex NU and ex CGU products.
Prior to the merger he was also responsible for the management of Norwich Union's large annuity portfolio, including the pricing of products and related investment activity. He was a member of the UK industry "Choices" Working Party on the future of annuities and on a working party of the Institute of Actuaries Pension Board looking at extending retirement choices. He now chairs a further Institute of Actuaries Working Party developing further earlier annuity concepts.
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