Your IndustryJul 17 2014

Evolution of drawdown products

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It is likely we will see a wide number of new drawdown plans coming to the market, according to Stephen Lowe, group external affairs and customer insight director of Just Retirement, particularly if the stringent rules that currently cover annuities are relaxed.

One area of growth is likely to be the launch of more investment-linked plans offering a lower guaranteed starting income than an annuity in return for some potential future growth, Mr Lowe says.

He says these have been available both in this country and overseas for some time but are not without their critics, particularly on the cost of the guarantees.

Arguably Mr Lowe says he expects to see more innovation from annuities, such as plans that allow switching in certain circumstances, such as the diagnosis of ill health, or allow income to be dialled up or down over time, or which allow funds to be passed on to future generations or earmarked for long-term care costs.

With more people ‘personalising’ retirement and building an income source which suits their individual needs, Martin Lines, head of business development at Partnership, says the sky is the limit when it comes to innovation.

He says: “We could see more products combining flexibility and upside with an element of guarantee based on individual longevity.”

Claire Trott, head of technical support at Talbot & Muir, says advisers should remember as the Budget changes were still under consultation there is scope for further changes to be brought in before the legislation is published.

But any innovation at all can only be a good thing for those approaching retirement, says David Fox, sales and marketing director of Dentons.

Mr Fox says what is clear is retirement is no longer a one day event but more a phased approach for many and providers are having to adapt their propositions accordingly.

David Trenner, technical director of Intelligent Pensions, says there is likely to be a growth in ‘managed’ products which aim to use structures to substitute the need for advice.

He says these will be dangerous and can be very expensive.

Mr Trenner says: “We may also see the introduction of advanced life deferred annuities (ALDAs) to provide ‘back end’ protection to drawdown.”

Further reading

Retirement update: Where Unit-Linked Pensions Sit (30 CPD mins).