Annuity Products

Thinking

“I’d like a 458 Spider not an F12 please”

The announcement made by Chancellor George Osborne in this year’s budget that those retiring were no longer compelled to take out annuity products took everyone by surprise. 

It is unlikely though that those who have diligently saved for retirement will now splash out on Ferrari’s instead of buying annuity products.  They will instead search for alternative investment solutions that will need to be flexible, income generating, safe and avoid capital erosion.

Not the easiest mix of needs to fill but with £400bn currently sitting in UK DC Pensions and this number expected to rise with the rollout of auto enrolment we can expect many investment firms to come to market with solutions to meet these needs. Indeed Pimco have already launched their “UK Retirement Strategy Fund” made up of a multi asset fixed income portfolio, hedged against interest rate rises aimed at pension schemes.

Over the coming months we can expect a plethora of rival products to come to market. These solutions will no doubt leverage elements of bonds and structured products hoping to generate sufficient levels of income whilst preserving capital.

We doubt though that this will lead to the demise of the insurer in the post retirement investments arena. Those insurers with retained investment capability will be developing similar investment products, reallocating their clients pension portfolios into these products as required and / or offering them innovative new forms of annuities (e.g. mixed, variable, fixed term etc).

There will be a flurry of product development activity ahead and a battle ensuing in the post retirement investments market. Add to this mix the governments own investment solution offering market busting yields and we doubt they will be ramping up production in Maranello any time soon!

 

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By Dean Lumer

Dean is one of the founding Directors of Knadel. He has extensive experience of strategy development, M&A, target operating model design, organisational change and outsourcing within the investment management industry.

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