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Guaranteed products make return

‘Certainty in an uncertain world has consumer appeal’

Sesame says guaranteed products are becoming an increasingly common feature of the retail market.

The distributor points to guaranteed products increasingly being launched across life, pension and investment markets, reversing a long-term trend of decline in this area.

Head of research Mark Peters says more and more products are using derivatives to provide either a capital guarantee or a minimum rate of income.

He says guaranteed annuity-type products, which have long been a mainstay of the US market are also starting to be seen in this country.

Peters cites Aegon Scottish Equitable’s Five for Life plan as an example, being positioned halfway between an insurance bond – offering 5 per cent annual withdrawals – and a purchased life annuity, paying a guaranteed income for life.

He says this followed on from US giant insurer Hartford, which came into the market a couple of years ago offering a 5 per cent guaranteed withdrawal facility on its SafetyNet onshore investments bond, regardless of investment performance.

Peters says this feature brings additional costs and limited fund choice but the certainty of a fixed, minimum income is broadly appealing to consumers.

He says: “Certainty in an uncertain world has consumer appeal and the investment market has definitely reacted to this. Protected products, whether it is on investment return or regular income, had previously been the preserve of the structured product market, with derivative arrangements being used to provide a return of capital or a minimum investment return at maturity, if markets should go south.

“However, investment products with protected elements are now crossing over into more mainstream arrangements.”


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