There was very little progress in this period as the impact of changing demographics of the UK had not yet been seen. The longevity issues that plague the front pages and providers’ ingenuity now were a dot in the distance.
However, the first real innovation came in the mid 90s when the market and legislation woke up to the issues facing the retirement market. 1995 saw the advent of drawdown, giving more flexibility and, for the first time, giving retirees an option beyond locking into one income for their retirement.
Where the first 30 years of annuities were slow on innovation, now came a raft, with flexible annuities coming around the millennium, followed by unit linked guarantee products and then fixed term annuities. Not only have the options at retirement evolved, so too has the customer base for these products.
These days there is not one homogenous group of retirees. The times of everyone reaching age 65, retiring and buying a lifetime annuity are gone. In a world where pensioners now work part time, travel the world or continue in their jobs full time, more flexibility is needed. Because of this the annuity market has had to adapt to fit these groups.
They can broadly be split into four groups. The first are those that want a guaranteed income, who see this income as the be all and end all. They will retire fully and want the maximum income that they can get for their retirement, much as the retirement market used to be. It is likely that they will end up buying a lifetime annuity, although within this group there will be a split of those that get a standard annuity and those that get impaired or enhanced products, due to ill health.
The next group is those that want some underpin on their income – some guarantee on the income that they will receive – but still want the potential for it to grow. Here is where with profit annuities or unit linked guarantee products come into play.
