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Cracking the safe

The variable annuity market has seen a lot of activity in the last two years and at least two providers, Standard Life and Aegon, have plans to enter the fray this year.

Aegon managing director of annuities Mike Douglas says the decision to move into this sector is to give customers what they want. He says: “It is primarily to do with customer choice. As a provider, we are marketleading on the annuity side, we are market leading on the drawdown side but there is clearly a voice of customers who want something different and it is our role as a provider to use our skills to be able to do that.

“There are a number of customers who for a variety of reasons are attracted to these products. We are one of the leading providers of these products in the US and it is only natural that we bring that knowledge to the UK.”

The new product will be sold as drawdown product but Douglas says it will share similarities with Aegon’s Five for Life investment bond launched last year.

He admits the timing of the launch is quite fortunate as demand for guaranteed products increases whenever there is stockmarket volatility. He says: “I would like to say it is deliberate to launch a product with guarantees in such uncertain times. Obviously, we will claim impeccable timing but it is very topical at the moment for people who do not want annuities because either they want the death benefits or they want to participate in the stockmarket for longer but are a bit nervous of full drawdown just now.”

Third-way products have been criticised for being too complicated and too expensive but Douglas says the new product, Income for Life, has been kept simple. As for cost, he says it is more a question of annuitants understanding the cost of providing guarantees rather than being poor value for money.

He says: “People do not understand the costs of providing those guarantees or safety nets. They do not understand the risks that they are currently taking. It is not the case that they are expensive, it is about making it clear to people what sort of risks they are taking if they do not have the guarantees.

“How many people do you know who do not insure their house? So why should you insure your pension, which is your second-biggest asset?”

Douglas suggests that another reason for growth in demand for variable products is clients taking advantage of the some of the flexibility the new products offer. He says: “You do not have to take your whole pension fund and put it all into an annuity or all into drawdown. A customer might decide: ‘I quite like some of the upside so I am going to put half into an annuity and half into Income for Life.’ It provides options.”

Douglas is certain that the new products do not spell the end for the traditional annuity. He says “Absolutely not, because you have to consider the customer’s attitude to risk at that time of life. The biggest concern a customer has at that time of life is security. The total guarantee on the income that annuities provide will remain the attraction for the vast majority of customers.”


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