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Product matters

The Open Annuity is back. London and Colonial’s new annuity offering is designed for pension funds in excess of £100,000 and for investors who want to retain control over their investments after retirement. It allows investors to exercise control over their income withdrawals, with limits set at between 50 per cent and 120 per cent of conventional annuity rates.

It is interesting to compare this pension with other recent products launched. Some US insurance firms have recently tried to push invested annuities with guarantees attached. To my mind, this is the financial equivalent of an octogenarian marrying his 25-year-old nurse – fun if you can afford it but likely to be of limited lasting value.

London and Colonial eschews this approach, offering a simple framework. Investors can retire before age 75, maintain their investment exposure – full self-investment is on offer – and sail on past age 75 in this same pension arrangement without having to restructure.

Inevitably, the framework for this comes at a price – in the region of 2 per cent upfront and £750 a year plus around 0.8 per cent a year (from which 0.5 per cent trail is on offer to advisers), plus the cost of the underlying investments.

This pricing should leave enough space for an active investment strategy to pay for itself, though, particularly given the trail commission on offer. In terms of post-retirement product innovation, the bar just got pushed a little higher.

Tom McPhail is head of pensions research at Hargreaves Lansdown

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