Advisers could sidestep insurance companies and create their own fixed-term annuity product using a Sipp to secure better returns for clients, according to Better Retirement Group director Billy Burrows.
The fixed-term annuity market has continued to expand this year as providers look to offer consumers alternatives to conventional annuities.
LV=, MetLife, Just Retirement, Aviva and Primetime all offer fixed-term products through financial advisers.
Burrows (pictured) says by transferring a client’s money into a Sipp and investing in a fixed-term cash deposit account, advisers could offer a fixed-term annuity with the same income and a higher maturity value than would otherwise be available from an insurer.
Burrows’ analysis focuses on a 60-year-old man with £100,000 to invest. Assuming a commission payment of £1,500, a fixed-term income plan from Just Retirement pays £4,600 a year with a guaranteed maturity value of £83,241 at the end of the five-year term.
Burrows says by moving the client’s money into a Sipp account and investing in a five-year fixed term cash deposit account paying 3.9 per cent a year – a rate offered by Scottish Widows – an individual would be able to secure the same annual income with a guaranteed maturity value of £90,000.
Burrows assumes the overall Sipp set-up costs are £500 and the adviser is paid £2,000
He says: “This is a fantastic example of how an adviser can really prove their value to a client after the RDR.
“While packaged products from insurers may still be suitable for people with smaller funds, a DIY approach can deliver better outcomes for consumers with larger pension pots.”
Just Retirement external affairs and customer insight director Steve Lowe says: “One of the key benefits of our product is the break clause. If a customer becomes ill part way through their fixed-term, they can break the contract and purchase an enhanced annuity instead.”