Non-advised sales of fixed-term annuities to grow post-RDR
Primetime Retirement says products, typically distributed through intermediaries, are “simple” enough to be sold without advice.
The incoming Retail Distribution Review will precipitate significant change in the at-retirement market and in particular on the fixed-term annuities sector, which could see a substantial increase in non-advised sales post-2012, according to Primetime Retirement.
According to Stuart Wilson, marketing director at the annuities provider, the RDR will bring challenges to the space because many advisers will move away from this area.
However, he says that most fixed-term annuities are “simple” enough to be sold on a non-advised basis and predicts a rise in such activity from 2013.
Mr Wilson said: “One challenge will be that this product has typically been an advised product/process but there have been comments that fewer people will be advising on retirement products post-RDR as the pension pot may be too small to make it affordable for advisers.
“Providers of retirement products will investigate ways of facilitating this. We think it is possible for it to be non-advised; although it is in a complex area of the market it is a very simple product.
“People with small pots have effectively been shoe-horned in their offerings. Lifetime annuity is all they get offered [and] innovative providers may change this.
“We think lifetime annuity rates will remain a stalwart of the industry but clients need to know what the other options are out there.”
Mr Wilson also said that new European rules on gender neutral insurance pricing, due to come into force at the end of 2012, will put downward pressure on annuity rates, but the potential drops quoted by some providers of up to 20 per cent are exaggerated.
He said that both the incoming Solvency II and gender neutral directive will have have an ongoing affect on annuity rates, although he said some providers have already priced in Solvency II.
Insurers are currently moving towards gender neutral pricing to hit the 21 December 2012 deadline.
Mr Wilson said that annuity rates are not currently in what he termed a “normal position” and said gilt rates are also “undervalued” and should be higher than they are.
However, he said while this implies annuity rates will rise overall in the medium term, they won’t return to the double-digit days of the 1990s.
Mr Wilson said: “We are in an abnormal situation and there is evidence that this will change. Three months before the credit crunch, annuity rates were on the rise but since then there has been the eurozone crisis and continuous volatility which is driving annuity rates down.
“We are not out of the woods yet with the incoming Solvency II and the gender directive, but annuity rates will go up [over the longer term]”.