By combining products rather than bundling features into a product, there is the potential to achieve this without delivering new more complex products to market that risk mid-market customers buying into risk (and cost) that cannot be readily understood.
A small number of advisers have requested a combination of income options, for example a lifetime annuity and income drawdown, for their clients in order to achieve the combined aims of flexibility and guarantee prior to the Budget. Under the old rules the option of combining products was only accessible to the few, with most advisers considering drawdown unsuitable for those with pension pots of less than £100,000. Now that the minimum income requirement has been removed drawdown has become an option for everyone and providers have seen an increased demand for a blend of solutions.
Interestingly while annuity sales volume have reduced, there are clients out there who still want to secure a level of income in retirement and we expect annuities to continue to play a role in helping pensioners to fund their retirement.
From what we are seeing, lifetime annuities are being used to provide clients with an income they can use to pay their essential bills and day-to-day living costs alongside income drawdown which is being used as a lifestyle or discretionary fund which they can use for big ticket items such as holidays and home improvements.
Given that annuities are still in demand, it is important that among all the noise about the new freedoms and flexibilities we do not forget to highlight to savers how important it is to shop around for the best annuity in the market and make them aware of the benefits of purchasing an individually underwritten annuity in order to make the most of their pot.
It feels like an eternity since Steve Webb, the pensions minister at the time, discussed the need for “switchable annuities” and it was clear then that switchable annuities could be a great solution for certain customers and already existed in the shape of fixed-term annuities.
Providers have seen a significant increase in fixed-term annuities purchase as savers continue to look for a more flexible way to secure a level of income for a period of time while retaining the flexibility to change the shape of income in the future if circumstances change.
While no new products have yet to be launched there is likely to be further innovation in the drawdown and annuity space and we could potentially see the launch of guaranteed drawdown solutions that aim to smooth returns and limit the risk of investing in a similar way to with profits policies and products that smooth returns and guarantee capital.
