When the new variable and fixed-term annuity products were launched in to the UK market some five years ago, they were quickly grouped under the collective name of third-way products. It is easy to understand way.
Not only did they provide a viable alternative to the established two ways of annuity or drawdown but we all love new and sexy words that spice up a rather dull industry. I am not sure annuities are sexy but I think you know what I mean.
The term third way served a useful purpose as it created focus and discussion around the very important market for retirement income products that provide investors with a mixture of guaranteed income, investment choice and flexibility. But after two of the original variable annuity providers exited the market, MetLife has been left to successfully fly the VA flag. Now that other companies are rumoured to be launching VA products, it is time to consider renaming this group of products.
The market for investmentlinked annuities is going from strength to strength and fixed-term annuities are flourishing as more companies look to innovate in this market.
Income products that provide investors with guaranteed income, invest-ment choice and flexibility
When I present at conferences, I use a slide that shows the various annuity and drawdown options. They are grouped under three headings – non-profit annuities, flexible annuities and drawdown. The first and the third groups are easy to describe because they contain well understood products. However, the middle box, flexible annuities, is less easy to understand because it contains such diverse products.
The flexible annuities group contains many different policies, including with-profits annuities, investment-linked annuities, variable annuities and fixed-term annuities.
I wonder if it is sensible to group these diverse policies together but in the absence of a better suggestion, it is helpful for adviser and customer understanding to create a space for those policies that fit into the middle space between guaranteed annuities and pension drawdown.
I do not like the name variable annuity, especially because these are not annuities as we in the UK know them.
It is time to find a collective name for the group of products that I call flexible annuities. Some may argue that there are in fact two groups in this space – investment-linked annuities and unit-linked guarantee products. I could argue that there are three groups as fixed-term annuities merit a group of their own.
I come down on the side of agreeing a new generic name for all the options that do not fit into the guaranteed annuity box or drawdown box and my preference is flexible annuities. If anybody has a better suggestion, please let me know.
The Retirement Partnership