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Does Osborne’s Budget bombshell open the door for deferred annuities?

Pension providers have played down the likelihood of deferred annuity products being launched in the UK in response to radical reforms announced during the Budget.

Last month, Chancellor George Osborne revealed plans to alter UK tax rules in a bid to provide savers with greater freedom over how they spend their pension pot from age 55. The reforms will come into effect from April next year.

Some in the industry have suggested the announcement could see deferred annuity products, which are offered by providers in the US, marketed in the UK.

AJ Bell head of platform technical Mike Morrison says: “If you have someone who retires at age 60 with a portfolio of money they manage actively, the deferred annuity would provide a guaranteed income at a later date.

“So if you were unlucky with markets or strategies, you have an income that kicks in at 80 or 85 if your investments do not perform as well as you had hoped.

“It is an annuity people might actually want to buy and there could be room for development in our market.”

However, MetLife UK managing director Dominic Grinstead says behavioural barriers need to be overcome before deferred annuities are marketed in this country.

He says: “The next two or three years will be a really fertile environment for product development and single premium deferred annuities are one of a number of ideas being discussed in the market at the moment.

“It has been a product which has been marketed in the US but generally speaking there is a resistance to investing a large lump of money and not getting any potential benefit until you are 80, 85 or 90.

“There are barriers to deferred annuities and I think the thrust of product development will focus on using a range of tax wrappers to decumulate in an efficient way.”

MGM Advantage pensions technical director Andrew Tully agrees.

He says: “Deferred annuities are on a very big list of things that we could see a potential for.

“The difficulty is, from a market point of view, would people be willing to give up capital today to get something in 20 years’ time?

“The obvious comparator is long-term care insurance. In that market these sorts of products have sold particularly poorly.

“On a theoretical basis the deferred annuity makes sense but in practice it is a difficult product to sell.”

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Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. Deferred annuities?
    Are you guys serious? I think there’s a huge opportunity to be a little more imaginative than that – and to offer something that non-pensions people can understand. No wonder they don’t sell….

    In my very humble opinion, it’s easy to make pensions complicated (see above); make me something simple and easy to understand – transparent, low-cost and tax-efficient. Then it’ll sell.

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