How hybrid solutions fit into the retirement universe

  • Describe some of the options available to advisers for retirement income
  • Explain the pros and cons
  • Identify some of the impact of pension freedoms

These were typically classed as ‘third way products’ and were not specifically created with Pension Freedoms in mind as they were launched well before they came in.

Fixed term annuities

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Fixed term annuities, despite the name, are written under drawdown rules. These products allow a guaranteed income over a specific term and/or a guaranteed lump sum at the end of term, from about 1 to 40 years.

This enables a client to receive a guaranteed level of income for a specific amount of time, rather than for life, to account for changes in circumstances at the end of that term.

Canada Life, Legal and General and LV= are the current providers in this space. 

Blended solutions

Finally, we have also seen the introduction of hybrid or blended solutions. The principle here is that an annuity or annuity-style product is purchased by the client as a trustee investment within a Sipp.

The income from the annuity is then paid into the Sipp cash account and can be received directly by the client into their bank account or reinvested within the SIPP if it is not needed.

This way, the client can turn the income they receive on and off depending on their varying needs rather than receive income regardless of whether it is needed.

Retirement Advantage launched their Retirement Account in 2015, which allowed for an annuity to be invested as a trustee investment within a Sipp.

As the point of the product is to provide an income in retirement, it was restricted to only those over 55 who can access their pension benefits. 

In 2017, Canada Life purchased Retirement Advantage, this could have led to some concern that the product’s future would be uncertain.

However, in 2019 the product was re-launched within an accumulation pension product rather than simply for those at retirement but retaining the uniqueness of the proposition. 

The proposition continues to offer a lifetime annuity for purchase within the Sipp, retaining the ability to switch income on and off.

Partnership also launched a similar product in 2015 which was closed following their 2016 merger with Just Retirement, this offered an enhanced annuity.

Following on from this, in 2019 Just launched the Secure Lifetime Income product which as the name suggests, offers a secure income for the client’s lifetime.

The key difference between this and Canada Life is that Just do not provide the Sipp into which the annuity is placed and purchased as a trustee investment. 

The Just model involves them working with platforms to enable their Sipps to accept an annuity-style product purchase.

They have partnered with Spire Platform Solutions whose technology is developed to work alongside the platform’s technology provider and facilitate a lifetime income asset to be held alongside other Sipp assets.