Personal Pension  

Risk-managed funds, guarantees to dominate post-April

Risk-managed funds, guarantees to dominate post-April

Risk-managed funds and ‘flexible guarantees’ are the investment strategies that advisers believe will come to dominate the retirement income market over the coming decade, research by Aegon has found.

The research, conducted by YouGov amongst more than 200 financial advisers, asked what strategies respondents will be following to produce retirement income in a decade’s time.

It found that 34 per cent of advisers believe risk-managed funds will overtake the traditional annuity as the leading retirement income strategy over the next ten years, followed by flexible guarantees with 28 per cent.

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Other options scored much lower, with income funds scoring 14 per cent, annuities a lowly 2 per cent and absolute return funds the same. Highlighting the prevailing uncertainty, in third place overall was the respond “not sure”, with 20 per cent.

An earlier Aegon report, published in November, found that 40 per cent of consumers want a guaranteed income in retirement, while 30 per cent are likely to opt for a combination of guaranteed income and a cash lump sum.

Aegon said at the time this evidences that flexible guarantees, “which provide a secure income in retirement”, will rise in popularity in 2015 and beyond.

Last year, a number of life companies who were expecting falls in their single annuity business told FTAdviser they were looking at launching so-called ‘third way’ unit-linked guarantee products.

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.

MetLife’s UK arm is the market leader with the company quoting a 75-80 per cent market share, with Axa and Aegon their only competition.

Nick Dixon, investment director at Aegon, said: “Flexible guarantees, risk-managed funds, and income funds are all becoming central to advisers’ toolkits as their clients look to take advantage of the new flexibilities, and with this greater flexibility the onus is now on providers to present the investment strategies that reflect this shifting landscape.

“The jury is out on exactly how the land will lie in 2015 and beyond, but there is a good indication that investment strategies will change to suit investor needs in the early part of 2015.”

donia.o’loughlin@ft.com