Prudential has become the latest firm to be linked with the future launch of a unit-linked guaranteed pension, which are set to become a major product development area for providers that are preparing for their individual annuity business to plummet in the wake of the Budget.
A spokesperson for the life and pensions giant told FTAdviser it is considering the types of products that it will update or launch outright next year, when new rules that remove all limits on what can be taken from a pension are introduced, and refused to rule out a unit-linked launch.
FTAdviser sister publication the Financial Times reported yesterday that Prudential is looking at a possible launch of a unit-linked guarantee, often referred to as ‘variable annuities’, following the radical pension changes announced in March.
Vince Smith-Hughes, head of business development at Prudential, said the provider is looking at opportunities “longer-term” and that it had “no concrete plans yet”.
Unit-linked guarantees are products written under drawdown rules and positioned in the middle ground between conventional annuities and income drawdown, which offer some guarantee over income or capital values while allowing a fund to remain invested.
There are currently three providers in the market, including Aegon, Axa and market leader Metlife, which commands a 75-80 per cent share.
On Friday (16 May) FTAdviser revealed a number of life companies are looking at launching ‘third way’ unit-linked guarantee products, with Partership confirming it is looking at the space.
Nigel Barlow, director of product development at Partnership, said it is “looking at third way products” and added that he could not “imagine any provider in the market won’t be looking at them”.
Mr Barlow added that as the new rules, to come in next year, haven’t been finalised, “it is too early to say what the final shape of a product will look like”.
Dominic Grinstead, managing director of MetLife UK, said “everyone” would be looking at the products and that “all big life companies” were likely to move into the sector in the longer term, as they seek new business lines to replace lost revenues.
Simon Smallcombe, managing director of Axa Life Invest in the UK, said he would be “very surprised” if there was not a “thrust” of innovation, and predicted the unit-linked market would rise from £1bn-£1.5bn to around £3bn over the next two years.
Following the new pension flexibility announced in the Budget, providers are facing the prospect of the new business tap for conventional single annuities being turned off.
A sharp slowdown in the final two weeks of March following the announcement was enough to drag Prudential’s first quarter annuity sales down 35 per cent. Legal and General’s sales fell 40 per cent, while Just Retirement and Partnership pointed to a halving of sales in April and May.
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