L&G says advisers are likely to see with-profits annuities as an alternative option to conventional annuities if the client is prepared to accept a degree of risk.
L&G has produced a guide to the products for advisers to use with their clients, which includes a calculator to estimate the potential impact of inflation on income.
Head of annuity product development for L&G’s individual annuity business Tim Gosden says: “People may have to rely on their pension for 20 years or more.
“This is a long time to live on a fixed level of income provided by a conventional annuity, particularly given the likely impact of economic changes over that period.
“Exposed to the ravages of inflation, a customer’s pension income could soon become insufficient to cover increases in the cost of living.”
L&G says that even during a period of low investment returns, the income from a with-profits annuity will not fall below the minimum guaranteed level set at the outset, although additional investment returns are not guaranteed so this presents a degree of risk.
But L&G says the effect of smoothing means that in turbulent market conditions income stream is less susceptible to dramatic fluctuations in value