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‘Peace of mind is the key factor in guarantees’

Critics of unit-linked guarantees often underestimate their value in mitigating against longevity risk, claims consultant AKG.

An AKG report into guar- anteed retirement products, commissioned by MetLife, says the potential value of guarantees as a hedge against the risk of outliving retirement savings are often overlooked.

The report, Unit-Linked Guarantees – Managing Risk in Retirement, suggests that the UK market is not used to transparent costs and tends to ignore the implicit charges for guarantees in products such as conventional annuities.

AKG managing director and report author Nigel Balchin believes that advisers do not have a full understanding of the importance that financial strength and hedging expertise play in guarantee pricing.

He argues that the key factor in the success of unit-linked guarantees in the UK will be investors’ attitude to risk.

Balchin says: “In the retirement market, there is not one product suitable for all. In an ideal world, guarantees would not be necessary. In reality, while the average investor may never see his guarantee in financial terms, for those that do, the guarantee undoubt- edly adds value as well as peace of mind.”

MetLife strategic development and marketing director Dominic Grinstead says: “The terms of engagement are changing in the retirement planning market. There is no wonder cure for all investors but it is clear that the industry needs to debate the way ahead.”

The report urges the industry to agree on a definition for unit-linked guarantees and challenges the use of the term “variable annuity” as a misnomer since the plans are usually neither variable nor annuities.

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