‘Hybrid’ retirement products which seek to offer pensioners a third way between annuities and drawdown in the wake of pension freedoms, can help clients looking for a more flexible retirement income, according to a report by Defaqto.
A hybrid product tries to marry up the guaranteed income provided by an annuity along with the flexibility of drawdown.
They differ from what are known as ‘blended’ solutions in that the income producing assets are held in a single pension wrapper, rather than separately.
According to Defaqto, the key advantage of hybrid products is that investors’ assets are held via a trustee investment, meaning the income sources and the income they produce are both held within the tax-efficient single pension wrapper.
Examples of retirees for whom this may specifically benefit include those currently in poor health, along with those who expect to recover and so are in immediate need of a secured income, but require it to be reduced or stopped in the future.
Summary of hybrid solutions
|Take control of investment strategy|
Get the investment strategy wrong and/or draw too much (income) so the capital value will be decreased, as will the future likely income available and/or inheritance tax planning
Choose the level of flexible income via drawdown
|Ongoing costs to be considered and reviewed|
Vary the level of secured income from annuity by diverting to drawdown
Requires ongoing assessment of the suitability of every aspect
Adviser view: Scott Gallacher, director for Rowley Turton said: “I understand that these hybrid pension arrangements are essentially an annuity held by a flexible drawdown arrangement which has some merit.
“My concern is that the investment options on these hybrid arrangements tend to be somewhat restricted with some only offering access to a limited range of passive funds.
“I’d suggest that the same benefits can be achieved with a straightforward Sipp purchasing an annuity but importantly with that Sipp retaining its full investment flexibility.”