Blending pensions can be expensive

This article is part of
Guide to retirement income

Packaged solutions

The range of options available to advisers includes some products which combine guarantee and flexibility, but they don’t come cheaply, as Drewberry’s head of paraplanning, Jonathan Cooper explains: “'Third way' products blend annuities and drawdown into one convenient package. However, charges tend to be high and opportunities for returns limited. 

“Fortunately, modern technology, such as platforms allows advisers to mimic these products for their clients via standalone arrangements. This can achieve the same benefits, but with increased returns potential, control and flexibility.”

Ross Leckridge, associate director at Johnston Carmichael Wealth takes a similar view: “There are products blending annuities and drawdown into one package and generally they are suitable for those clients who wish to keep their affairs simple or are unsure how their expenditure might go in retirement. Our preference is to create a solution for clients that would use both annuities and drawdown to create income for clients in the most tax-efficient way possible, catering for income for life and allowing clients to live life on your terms.

Fiona Tait, technical director at Independent Pensions agrees that packaged solutions may not be the most cost-effective option: “In general, we believe that using separately sourced annuity and drawdown products is likely to provide better value for money for advised clients than packaged products which tend to come with higher charges.

“It also means that successive annuities can be secured on different bases as the clients’ circumstances change, with level annuities providing good value in the early years and inflation-proofing being provided by the drawdown fund, potentially followed by escalating annuities in later years.

She adds: “There is also a relatively new product from Just Group which holds the annuity within the overall Sipp plan to provide an income underpin but where withdrawals can be varied according to the client’s needs at the time.”

Retirement income products and services business, Just Group, launched its new product, Secure Lifetime Income last year, on a pilot basis.

The company’s group communications director, Stephen Lowe, emphasises the importance of the adviser’s input, in helping clients achieve their pension objectives, as he says: “Advisers have always been the client’s architect; they mix and match the assets and sources of income to deliver what the client needs and wants.  

“Over the last decade or so advisers have moved where they do business and the environment is now dominated by platform technology.  This adoption has accelerated in the last five years as the pension freedoms reforms were introduced.  We developed our solution, Secure Lifetime Income (SLI), in response to these trends.”