Nucleus platform boss calls for alternatives to annuities

The chief executive of Nucleus Financial said he had been looking at price differences between corporate bonds and annuities issued by the same company and was shocked that even enhanced annuities offered a “paltry return”.

He said: “Obviously these are two different things, but there are underlying similarities to be expected in pricing, even between an investment and an insurance contract.”

Mr Ferguson said the launch of the annuity window tool to help people shop around by the Association of British Insurers earlier this year was “laudable”, but added: “It is all a bit one-dimensional and of course starts with the premise that an annuity is the right option.”

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He said advisers increasingly needed to consider alternatives to annuities, although whether the product provision was there was another matter. Mr Ferguson added: “Regardless of the technicalities, if a corporate bond issued by a life company offers materially better terms than an annuity offered by that same company, the industry needs to work harder to cut through the noise and create better client outcomes.

“Advisers are central to overcoming this challenge and to accelerating the shift away from generic one size fits all products to the creation of bespoke solutions to serve individual customers.”

Adviser view

Mark Ireland, financial planning consultant for Hertfordshire-based Richmond House Financial Services, said: “Mr Ferguson is absolutely right. I do not personally go into any client meeting with someone approaching retirement having in my mind that they should or should not go down the annuity route as it all depends on their personal circumstances.

“We find that if someone has only ever got information at retirement from a provider, they may hear about the open market option but generally there is no mention of alternatives to annuities in the client packs.”