UK - An assessment model to measure risk objectivity is being launched in a bid to restore confidence in the annuity market.
The Annuity Bureau believes asset allocation must be more prominent in the purchase of investment-linked annuities and income drawdown.
But it says fluctuating stock markets and “speculative” risk assessment have led to a loss of confidence in annuities and income drawdown in the past year.
Managing director Peter Quinton claims the traditional models, which rank risk on a numerical scale based on an individual’s level of caution or optimism, were becoming obsolete.
He said: “The traditional models are open to interpretation – one man’s ‘balanced’ is another’s ‘speculative’. Bearing in mind steep stock market falls it is no surprise that investors are still disillusioned with income drawdown and annuities that rely on equity performance.”
He added: “There are clear indications that many did not understand the risks when they were sold the investment in the first place and this should prompt all retirees and their advisers to reconsider the way they assess their attitude to risk.”
The Annuity Bureau’s new risk-scoring model is designed to ascertain attitudes to issues including short-term fluctuations in investments, inflation, returns against inflation and timescales for investment.
From this an asset allocation strategy is designed to fit the individual’s risk profile and regularly reviewed in line with fluctuating investment performance.
A suite of liability driven investment (LDI) indices has been launched by STOXX and RiskFirst to aid trustees and consultants select, monitor and challenge managers.
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