Beware the eroding effect of inflation
At retirement, a level annuity will offer the highest income of all guaranteed annuities, but its purchasing power shrinks every year in line with the inflation rate
It should be mandatory for retirees to get advice if they want to invest in a living annuity or a level-guaranteed annuity, says Old Mutual Corporate Consultants financial adviser Andrew Davison. He said most retirees who bought a guaranteed annuity did not receive any advice and many bought a level annuity, which pays the same pension until death without any increases to take account of inflation. At retirement, a level annuity will offer the highest income of all guaranteed annuities, but its purchasing power shrinks every year in line with the inflation rate. The monthly income provided by an annuity that pays a pension with an annual inflation-linked increase would typically overtake that income provided by a level annuity within 10 years, said Davison. Independent financial adviser Wouter Fourie said advisers were allowed by law to give guidance on complex annuity products when they had only one year of experience. "We need to address this. The products are complex products tha...
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