One of your biggest investment risks in retirement is not knowing what retirement will look like. What I have found in working with retirees is that their initial idea of what retirement will look like is far different than how it turns out to be, for better or worse. That’s why it’s smart to give yourself financial options and that’s one of the many drawbacks of annuities. In addition to their high fees and high pressure sales pitch it’s the locked in forever nature of annuities that can be most harmful to your family’s well-being.
A former Government adviser said many people would have to live until they are 90 before their annuity becomes good value, and that the policies were so dangerous they should carry a risk warning.
Ros Altmann, a pensions expert, said thousands of annuity holders had no idea their husband or wife may not get their money if they die because their policy may not cover a spouse or partner. And she urged regulators to “wake up” and address the “current market failures.”
She said: “Far from being a low risk purchase, buying an annuity could be the biggest gamble you ever take in your life. An annuity purchase is a long-term investment decision, which risks losing much or all of your money, yet people are given no risk warnings about the dangers of buying.
“If you die soon after you buy a standard, single-life annuity, your pension fund will go to the insurance company, not your loved one.”
She added: “Buying an annuity is considered the ‘safe’ thing to do when reaching retirement. This is misguided. The ‘safety’ only refers to the fact that the amount of income will be set for the rest of your life. But the capital itself is at risk.”