The opportunity for real reform in the UK annuity market has been hampered by ill-informed debate in recent months, said Annuity Direct director Stuart Bayliss.
Speaking at Paymaster’s seminar on outsourcing annuity administration last week Bayliss argued that the industry’s failure to explain effectively the dangers and need for increased savings in annuities has allowed the debate to become narrow and selective which has undermined the need for reform.
“I don’t agree with the age 75 rule, but to attack the problem as an annuity trap is to fail to understand the issues.”
Bayliss said too much of the annuity debate is based on it delivering poor value through low interest rates, but if annuities are put into a wider economic context and are considered in terms of the guaranteed income they deliver for life annuities are for many the appropriate protection.
Guest at the seminar, Personal Pension Management Managing Director John Moret agreed that the belief that annuities are always unsuitable and drawdown is preferential is a nonsense.
“The issue the government have to take on board is the need for reform and it is disappointing to see that so far that message has failed to be heard.”
The real persisting problem with annuities, Bayliss argued, was that they lock annuitants into irrevocable levels of income which cannot be altered and it is within this context that wider debate and government reform should take place.
Prudential Annuities new hybrid annuity - drawdown product offers a part way solution to the problem as it offers both the security of guaranteed income for life while allowing much greater income flexibility.
The Annuity Bureau’s head of marketing David Marlow described Prudential’s new flexible lifetime annuity as a ground breaking product pushing the boundaries of what constitutes an annuity further than ever before.
“In simple terms, the product is an investment fund from which clients take income. This may have the ring of income drawdown about it, but it is still a genuine annuity product as it guarantees an income for life and the annuitants also benefit from cross subsidy.”
Every month the product pays a lifetime bonus in the form of extra units. these are funded by the provider sharing the income of those annuity holders who die and whose pension pot is redistributed.
Marlow said it is similar to income drawdown in respect that its flexibility offers tax planning opportunities as well as the opportunity to take the income you need when you need it.
Moret said the remaining problem of the Prudential’s product is that on death the remaining fund is lost and redirected back to the life office.
By James Wallace
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