Prudential has become the first provider to offer a with-profits annuity which accepts protected rights funds.
The firm has taken advantage of A-Day changes which allow people to invest their protected rights money in a with-profits annuity, allowing them to take income from age 50 along with up to 25 per cent tax-free cash.
Before A-Day, people could only invest protected rights money in conventional escalating annuities.
Customers do not need to set up separate annuities for protected rights and non-protected rights money and will receive one income payment. They can also get impaired terms.
Pru estimates that £428m protected rights money was earned last year. It believes its product will provide an appealing alternative to conventional with-profits annuities and predicts that other firms will launch similar offerings.
UK head of annuities Aston Goodey says: “There is a big appetite because of the economic climate and low conventional annuity rates.
“This addition is another reason why advisers should be looking at all the annuity options available to their customers, rather than just basing their decision on a rate and opting for a level conventional annuity.”
Equal Partners managing director Vivienne Starkey says: “It could make with-profits annuities more appealing but I cannot say I am overly excited about it. With-profits annuities are still only an option for people willing to accept an element of risk.
“There is a guaranteed minimum income but it is a nil growth rate so IFAs will still compare this with offerings on the open market. It will not change the way we operate.”
Lowes Financial Management managing director Ian Lowes says: “Now there is such flexibility when it comes to drawdown and phased retirement, the majority of people with decent levels of savings would not be best served by going in a with-profits annuity.
“If anyone could pull this off, Prudential can but the with-profits market has been irrevocably damaged by the broken promises of other insurers.”