But should savers no longer forced to select a single product - an annuity - be selecting packaged products that place all their retirement income hopes with one provider?
John Lawson, head of policy at Aviva, says the greater access to pension pots granted since April means savers are now able to pick their own products from several providers for blended solutions.
He says: “Aviva has launched a tool which is provider agnostic which allows advisers to blend annuities, drawdown and other sources of retirement income together to match clients’ expected expenditure patterns during retirement.
“It uses a stochastic model to show the likelihood or chance of any chosen solution meeting the client’s needs.
“Such a tool allows advisers and their clients to pick best of breed components and also use other income sources such as defined benefit and state pensions to form part of the solution.”
Mr Lawson says it is important that adviser’s clients grasp the difference between blending and packaging.
Packaging is where more than one product solution is presented to the customer in one unbreakable package, for example, a package of one provider’s annuity and drawdown or a package of one provider’s drawdown and fund solution.
He says: “Such packages generally represent poor value for money and go against the grain of open architecture and transparency, which has emerged within the financial services industry.
“Aviva believes that the best solution is a blend of annuity and drawdown and, although we would like advisers to recommend both our annuity and our drawdown to the same client, we don’t force advisers to do that.”
But Phil Brown, head of proposition at LV, says it is wrong to discount packaged products and argues with a packaged product there is a single point for managing products and investment post sale.
He says such products remove the need to collate information from several places.
In terms of the downside of packaged products that blend retirement income solutions for you, Mr Brown says the key issue is about comparison of products and charges.
He says: “Finding the best product/rate for an individual customer may not always result in products from the same provider.
“Some customers prefer not to keep all their eggs in one basket – but providers with strong brand and financial strength backed by the Financial Services Compensation Scheme (FSCS) cover for each product mean that customers’ money is well protected.”
Jacqueline Wilkins, director of sales and marketing at Partnership, says there are a number key advantages of a hybrid (or packaged) solution over “picking your own products”.
With a hybrid being one product, not a bundle or blend of different products, Ms Wilkins points out the client only pays one set of product charges not multiple costs.
She says: “A hybrid solution offers significant tax advantages over picking your own products due to the fact that income generated from either the guaranteed element (annuity) or the flexible element (FAD) is not subject to income tax until such time as it is taken outside of the product wrapper.
“Picking your own cannot achieve this as the component products are all separate products and as such the guaranteed income (annuity) must be taken in full. with a hybrid solution the client rolls up the income, keeping it within the product wrapper until it is needed.”
Additionally, Ms Wilkins says the hybrid solution ensures everything is in one place, which means the client only has one set of documents and one P60, not multiple documents as would be the case with picking your own, keeping administration very simple and transparent.
“A hybrid solution is also very simple to set up, one application rather than several. From an advisers perspective the hybrid solution is much easier to administer and would be less time consuming than a pick your own approach.”
But for Duncan Jarrett, managing director for retail at Aegon, the whole point of the pension freedoms is that people are no longer restricted to one type of product and one retirement income provider.
He says: “This gives people enormous flexibility to combine cash withdrawals with regular income from drawdown or to look at guaranteeing certain aspects of their income either through guaranteed drawdown or an annuity.”
Whether you opt for a packaged product or to pick several of your own Aegon’s Mr Jarrett says he believes when it comes to retirement, the ability to combine flexible access to your savings with a guaranteed level of income is the most desirable combination.
He says: “This is because people’s retirement income needs aren’t constant throughout their retirement and there will be periods when you need more or less income.
“For example, 56 per cent of people report encountering a large unexpected expense in retirement so the ability to flex your income accordingly is important.
“That said, there will be some costs like the weekly food shop, or council tax bills that will remain relatively constant.”
