Legal and General is considering the launch of a fixed-term annuity, which it says will provide an income tax-efficient post-April withdrawal option that would mitigate risks related to relative value fluctuations when securing an income for life.
The firm said such a move would be directly linked to both the pension freedoms, which come into force in April this year, as well as the fact that interest rates have been at record lows. There is no confirmation that an fixed-term product will finally be launched, or when.
Speaking to FTAdviser, Bernie Hickman, managing director for individual retirement business said: “We are not confirming the details yet but it is an area we are exploring and it will become more popular if interest rates stay at record lows.
“If people don’t want to take investment risk then they won’t want to lock into lifetime annuities. We are giving people more options to link into freedom and choice in April.”
Lifetime annuities are often characterised as removing the risks associated with more investment-based solutions.
However, experts point out conventional annuities fail to deal with particular issues such as inflation risk - and changes in interest rates over time, for example, mean there is also the risk of increases in future annuity rates decreasing the relative value of an existing lifetime income.
Mr Hickman added that if a person has a relatively small pot then a fixed-term annuity may be a “nice, simple product to pace withdrawal” in an income tax-efficient way.
Asked why now was a good time to make the decision to move into this area of the market, Mr Hickman said: “Now you don’t have to buy a lifetime annuity [post the reforms] and also interest rates have gone a lot lower so circumstances have changed.”
ruth.gillbe@ft.com
