A year down the line, it’s time for a little reflection. How has it gone down, what have we learned and what does the future hold?
Before considering the product itself, it’s pertinent to say at outset that the market hasn’t changed. The onus is still very much on financial advisers to consider whether it’s appropriate to lock someone into a lifetime annuity and this is still a market for a viable alternative to both conventional annuities and unsecured pensions.
This was the prime supposition that drove us to deliver the PRP. Not only does this product offer some of the benefits provided by the other
routes, it comes with less investment risk and gives clients the freedom to reassess their needs and provisions as they get older.
In addition, if they live until the end of the term, it provides a guaranteed maturity value which can be used to buy an annuity, another Protected
Retirement Plan or invested in an unsecured pension. It will all depend on what suits the individual.
Throughout the product development period the key for us was to keep it simple. As a new concept in the market we needed to make it straightforward enough that advisers would be able to understand how it worked and sell itto their customers.
We have been delighted by the reaction from advisers over the past year. It has generated a lot of interest and we have received a lot of encouraging feedback from everyone that’s looked at the product. IFAs tell us they like the product because it’s an easy concept to explain to their clients and gives them a real alternative to the conventional annuity. They can demonstrate clearly how an individual customer may benefit.
The feedback we’ve had regarding selling points tells us that lower investment risk, a guaranteed income and a guaranteed maturity value are the main attractions as far as individual clients are concerned. So what of the future?
With several other providers understood to be looking at this area, there’s an obvious opportunity for further growth. We believe we’ve only scratched the surface and, to mix metaphors, it’s only the tip of the iceberg as far as what can be achieved. As the market evolves and advisers
become more used to the concept, it is anticipated that there will be increased flexibility and additional options introduced.
With the current economic conditions, people are going to have to work longer into retirement. Whether this is on a full or part time basis is up to the individual but what is clear is that this flexibility will need to continue.
All the demographic and regulatory trends actually point to it being an increasingly important factor. When someone is coming up to retirement
it’s very easy to look at their health and personal conditions at that point in time and conclude a conventional annuity is most suitable but advisers need to be looking further.
The new 55 per cent tax charge on lump sum death benefits coming into force in April will encourage more people to annuitise and for those that do it’s all about timing. A fixed term annuity acts as a bridge for them – a nice temporary solution that enabling individuals to choose their timing on ultimate, and irrevocable, annuity purchase.
Solvency 2 means the cost of providing a full lifetime guarantee is also going to increase so people will be looking to other options. PRP provides a little stop gap until they can get, for example, an enhanced annuity rate and benefit from higher levels of income.
It also means the nature of fixed term annuity products are likely to develop. At the outset we deliberately kept the product features simple to help the sales process but there is a huge amount of potential for evolving the concept.
Matt Trott is Head of Annuities at LV=