Annuity  

State Street considers deferred annuity launch

State Street considers deferred annuity launch

State Street Global Advisors has said that it is considering launching a deferred annuity drawdown product in the UK.

Alistair Byrne, head of EMEA pensions and retirement strategy at State Street Global Advisors, said Solvency II capital requirements are keeping providers from offering deferred annuity products but it will look to offer a "product when the time is right."

In the US, State Street launched a deferred annuity drawdown hybrid product with the University of California earlier this year.

The deferred annuity product uses a proportion of the accumulated target date assets at age 65 to purchase a deferred annuity to start payments at aged 80.

Mr Byrne said: "There is no reason why people can’t take on both the risk of drawdown in their earlier life while still having access to the security of annuity in their later life.

"We launched the deferred annuity drawdown product in the US with the University of California and it has been successful.

"But the UK is slightly behind in terms of offering a product like this and certainly since the pensions freedoms were introduced, we have seen drawdown being more popular that annuity.

"UK providers might struggle when it comes to offering a product like this because of Solvency II capital requirements may be too much for them.

"But deferred annuity drawdowns are being looked at as a possibility in the UK and when the market seems ready, we will look to bring that to market."

Martin Bamford, financial planner and director of Informed Choice, said: "Deferred annuities are an interesting concept and could form a usual part of the financial planner toolbox.

"Securing a guaranteed income later in life is likely to create a valuable backstop to the risks associated with income drawdown and running out of money in later life.

"Convincing retirees to give up capital today in return for income tomorrow can prove quite difficult. Solvency II requirements will also discourage UK insurance companies from innovating with capital intensive products like this."

rosie.quigley@ft.com