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Scottish Widows eyes hybrid drawdown launch

Scottish Widows is eyeing the launch of a hybrid drawdown product, Money Marketing understands.

In a new magazine for advisers launched today, the provider notes the FCA’s observation “that product innovation has been limited for mass market investors in drawdown” and alludes to “announcements on that front later this year” from Scottish Widows.

Providers have so far struggled to develop middle-ground offerings between annuities and drawdown. The likes of Metlife and Aegon have pulled their offerings, while the likes of Royal London were considering moves but have pushed plans back.

Though Old Mutual did develop a new decumulation product designed to offer inflation protection as oppose to simply targetting income, it has also poured cold water on any full hybrid product launch.

While advisers frequently site cost concerns with guaranteed drawdown and other half-way products like investment-linked annuities, research suggests many are unclear on what the costs actually are.

Scottish Widows head of fund proposition Iain McGowan writes: “The Government’s expectation that the [pension freedoms] would drive new innovation in the market has not yet been fully realised. In the drawdown market in particular, pressure is growing on the industry to support sustainability of income in retirement.

“The preference for both investors and advisers has been to enter drawdown, rather than buy an annuity. However, products that provide investors with sustainability of income, potential for capital growth and, ultimately, peace of mind, remain conspicuous by their absence.

“Many advisers are navigating this area by helping clients manage a phased strategy, initially with drawdown followed at a later stage by annuitisation (of at least some of the pension pot). This offers a combination of short-term flexibility and long-term certainty and longevity hedging. What it doesn’t do, however, is blend the two in a way that ensures the drawdown investment stage doesn’t undermine the ability to provide certainty later in life.

“This is why the focus now is on drawdown investment strategies that counter the various risks faced by investors in drawdown, not least sequence risk, pound-cost ravaging and inflation.”

A Scottish Widows spokesman said the firm could not comment further at this stage.

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