While some providers chose to look at hybrids and blended solutions, others chose to renovate their annuity products and are now actively marketing variable or unit-linked annuities.
These are neither hybrid nor blended solutions, but, for the right set of client circumstances, could be considered alongside these offerings or form part of a blended approach.
However, to return to the topic in hand, while blended and hybrid approaches are different, they do share certain features and benefits. Using these models allows people to choose a level of guaranteed income to meet their essential day-to-day costs as well as some flexibility to take money out as and when if they need it.
They can also generally choose to invest in funds for growth and purchase additional tranches of guaranteed income in later life (so increasing eligibility for an enhanced product). Other benefits associated with annuities – such as value protection, guaranteed periods and dependents benefit – are also generally an option if these products are chosen as part of the mix.
The hybrid and the blended approaches have pros and cons, but whether it is right for a specific customer very much depends on factors such as their need for flexibility, assets (type and amount) and willingness to engage.
Let us start by looking at flexibility. Blended solutions can be as flexible or inflexible as a client desires, while hybrid solutions offer some flexibility (for example, fund choice and level of drawdown) within a carefully defined framework.
One of the most important questions an adviser can ask their client is how do they define flexibility and, if they see drawdown as part of this, how do they intend to use this feature?
If they intend to thoroughly enjoy the early part of their retirement regularly dipping into their pot, then it may not be worth the cost and expense of setting up a separate contract if it is only going to run for 10 years. However, if they have a large pot that they intend to use throughout their retirement then a blended solution may be the answer.
One area where hybrids offer more flexibility than blended solutions is that they offer the investor choice to reinvest income within the plan if their circumstances change or tax planning dictates. Therefore, it is worth considering this likelihood as part of their overall retirement planning picture.
Picture: Left: hybrid, right: blended@Image-0af41a35-155b-4c81-b431-4d49a0abdfeb@
