When the new Defined Contribution (DC) pension changes officially take effect, human resource experts predict that less than half of a company’s employees will buy an annuity at retirement.
A survey conducted by Towers Watson revealed that employers are unsure what retirement options their employees will actually choose. Many companies are preparing for employees to explore alternative forms of income when they reach retirement age. HR experts explain that companies and management teams need to try to define what employees are anticipating as retirement approaches, to be able to take the first steps towards predicting what will be expected of the company.
Research also shows that incomes offered to retirees looking to buy an annuity have actually started to decline since the budget announcement at the beginning of the year. Of course, the best available annuity depends on the size of a DC pension pot. Larger pension pots have seen less of a decline in annuity.
HR experts explain that given the way different markets have moved in the last five or so years, it was expected that rates would have been worse than they are. Regardless, the decline does help to explain the accelerating loss of interest for those with smaller pension pots.