Why haven’t new retirement income products materialised?

Axa Lifeinvest’s global director of distribution Simon Smallcombe said that propositions remain pretty much the same as they were before the reforms, but more needs to be done to refresh the options available, through researching adviser and customer behaviours.

“For me, one of the glaringly obvious changes is death benefits,” he stated, referring to the government’s removal of the 55 per cent tax charge to beneficiaries. “This is a huge change and an opportunity, but we have seen very little in the way of innovation where it comes to death benefits.”

In June last year, Axa Lifeinvest launched the SecureAdvantage Plus and a death benefit guarantee called Protect75, which aims to protect the amount policyholders pass on to named beneficiaries if they die before 75. So far, the firm has sold 9,800 UK SecureAdvantage Plus contracts to IFAs since launch.

“There is a huge opportunity for innovation.” Ros Altmann

Mr Smallcombe reckons providers are sitting back and waiting to see how the dust settles.

“Providers that have traditionally rolled over their pensions into annuity are now rolling over those pensions into drawdown; there is no real need for some life companies to change their behaviours.”

Fiona Tait, pension specialist at Royal London, said the pension freedoms were brought in with less than 14 months to implement them, which was a very tight timescale for firms to effect a wholescale change to products and systems.

“Pension companies had their work cut out to deliver products which offered the new freedoms, any additional innovation would have been severely constrained by this.

“Some providers have been able to build on existing expertise, such as income guarantees or annuity underpins, but completely new products have been thin on the ground and may not in fact be required.”

Ms Tait suggested that rather than product innovation, advisers might see innovation in the way services are delivered to the customer instead.

Ahead of last April’s changes, the then pensions minister Steve Webb said he was confident that innovation would be one of the outcomes, but analysis by consultancy AKG suggested that this is unlikely to materialise until later this year, if at all.

It pointed out that the major hurdles for developing new solutions are connected with evolving consumer requirements, the difficulty of forecasting sales trends in a changing market and the risk of making mistakes and committing capital needed for system upgrades.

Speaking to FTAdviser, pensions minister Ros Altmann said she is watching to see how the market develops. “So far, there have not been many innovative new approaches, but I would expect some to be launched in the next year or so.

“I believe many companies are working on new ideas that could help customers manage their pensions throughout their lifecycle and, with the new freedoms and flexibilities, there is a huge opportunity for innovation.

“The traditional lifestyling and drawdown approaches are not necessarily the best way for the future and a wider range of choices would be welcomed by many customers.”

Adrian Grace, chief executive of Aegon, pointed to its Secure Retirement Income product, which combines unit-linked guarantees and drawdown.

He claimed this product was the first guarantee available from a platform, which had proved “immediately popular”, with the firm revising its sales expectations by more than 100 per cent.

Zurich UK Life has also launched a range of services designed with the freedoms in mind and is currently working on a new product which will allow customers to switch their fund to an income for life, combining drawdown with an annuity.

A spokesman from the firm said: “We are still working through the detail of the product and will make a further announcement later this year.“

Vanessa Owen, head of retirement solutions products at LV, said her company had identified that rather than just one new product, as a result of the pension reforms, customers are more likely to need to use a combination of products, adding that there is no one size fits all solution.

Last year, the firm launched several services in response to the freedoms, including the LV Retirement Wizard, designed to respond to the growing need for affordable advice.

LV also claimed to be the first provider to launch a one-year fixed term annuity, designed as a temporary solution for those retirees that wanted to access their tax free cash and income immediately.

An Aviva spokeswoman said it has taken steps in the last year to launch tools and a new website.

Tom McPhail, head of pensions research at Hargreaves Lansdown, added that many providers priority has been to ensure they have a customer interface to deal with basic consumer requirements.

“Now the new freedoms have started we have still not seen significant product innovation. There has been a little bit of work bundling drawdown and annuities into one contract, and we have seen a certain amount of investment innovation, but actually not a great deal.”

katherine.denham@ft.com