Firing lineJun 13 2018

We still believe very much in the drivers behind annuities

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We still believe very much in the drivers behind annuities

Annuity products have also seen a decline in sales as a result of the low interest rate climate in recent years. 

But for Emma Byron, managing director of Legal & General’s individual annuities business, there are plenty of opportunities to be had in the market.

These are being driven by the massive gap in the retirement market, which is ever wider because providers have failed to find the best ways to adapt to a market still in its infancy following the announcements about the end of compulsory annuitisation.

Ms Byron said: “We still believe very much in all the growth drivers for the market, such as the ageing population, the continued move from defined benefit to defined contribution. Interest rates will not necessarily stay low forever and equity markets have become more volatile.

“All of that stuff drives annuities and when we speak to our customers they still tell us they want peace of mind and security, which often means annuity is the right answer for them.

“Annuities are not bad. Just because the chancellor said you don’t have to buy one, does not mean it is a bad thing to do. It is our job to demonstrate factually to the market that annuities are not poor value for money.”

Despite a reduction in the number of annuity providers in the market, L&G is still standing strong. For the provider it was a “considered decision” to stay.

Ms Byron added: “Back then we adopted a care and maintenance approach with the business. Obviously we knew the market would drop significantly, which is what happened.

“But we also thought, all the non-core annuity players in the market would likely leave, and therefore we would still want to compete and be a sizeable market player.

“We saw where the market settled and it is now quite an easy decision for us to say. So, we are absolutely committed to this market.”

According to Ms Byron providers need to focus more on how the products are delivered to clients rather than continually rolling out new offerings.

She explained that customers are still confused by the products they see, while the flexibility is not always there to meet the changing needs of the customer at different ages.

“What you need at 65 is likely to change when you get to 80 to 85. So we need to bring in that dimension of change over time, and then we can tell customers what products will help them meet their needs, rather than starting with products and words customers cannot engage with.

“We know not enough people go and see advisers. We need to start with the customer's needs, goals and aspirations for retirement, as that is likely to change.”

So, to address the retirement gap issues, L&G has started holding advice breakfast sessions where it shares customer research and explains the challenges customers are facing in retirement.

The company is also doing work to demonstrate the value of annuities versus drawdown.

“Let’s assume we get 4 per cent on drawdown, what happens if there is a market shock and how does that change things for people?” Ms Byron said. "What happened to people who went into drawdown five years ago? Are they likely to run out of money?

It is not a one-product silver bullet solution. It is much more about the engagement of customers.Emma Byron

“How does the new world of retirement work and how can we help you position annuities with your consumers with messages that will resonate with them?” This does not mean L&G is saying that annuities are always the right answer, Ms Byron is keen to stress.

“Equally, drawdown is not always the right answer for people,” she added. “Drawdown may be the right answer when you are 65, but for that same individual do they want to be in drawdown at 80? We have concerns around cognitive decline as people age. When a customer is in their eighties or nineties or when they start suffering from dementia, do you want to be advising them on a drawdown product? Probably not.

“It is not a one-product silver bullet solution. It is much more about the engagement of customers.”

Ms Byron added, instead of pushing the product first, providers need to look at an individual’s basic needs and then work out the best product that can help them.

L&G is also considering a robo-advice offering, which Ms Bryon said will not replace advisers they do business with. Rather, it will complement what they do and help them with the messaging they are giving.

The company has also made improvements to its underwriting capability and pricing, to make sure more customers qualify for enhanced uplifts, while it is expanding its distribution team.

Ima Jackson-Obot is features writer at Financial Adviser