View more on these topics

The right way ahead

I am a regular reader of John Greenwood’s column and appreciate the insight he provides on industry issues but last week’s article on third-way products contained a series of inaccuracies that need to be addressed.

We welcome the high level of scrutiny and debate that keeps providers on their toes but we do not want IFAs or consumers to be left with an unbalanced picture of one of the few genuine product innovations to have hit the UK market in the last decade.

First, the US court cases relate to equity indexed annuities sold by some US life offices. These are totally different from the variable annuity products that The Hartford sells in the UK. We do not sell equity indexed annuities in the US either.

The distinction is important because you do not have to be registered to sell equity indexed annuities in the US. The Minnesota attorney general has uncovered a number of misselling cases where the people who sell equity index annuities are not licensed or trained in suitability issues. None of them are obliged to follow the type of treating customers fairly principles we have in the UK precisely because they are not regulated. There is no obligation to be transparent on fees or sales practices.

In contrast, variable annuity products are only sold by fully licensed professionals who understand the needs of the retirement market. We put great store in IFAs and we only sell our products via intermediaries.

Equity indexed annuities are also different in design and charges from variable annuities. There is far less flexibility with equity indexed annuities. Commission on these products can be as high as 11 per cent and to support this, customers need to pay big fees and surrender charges should they want to exit the product. In the UK, charges and commission for our products are the market norm and fully disclosed at outset.

We firmly believe there is a big appetite for third-way products in the UK which is why we have taken some of the best features of successful products in the US and Japan and integrated them into the UK’s mainstream bond and pension markets. We have enjoyed very positive feedback from distributors and consumers who value the protection and flexibility offered by variable annuities.

These products are not suitable for everyone but we are witnessing the same trends that drove the expansion of the market in the US and Japan, including an ageing demographic that wants to make the most of retirement. The variable annuity market in the US is worth $130bn a year and $50bn in Japan. The UK market is undoubtedly different and does not follow every US trend but actuarial consultant Tillinghast Towers Perrin estimates that inflows into variable annuity products will reach 70bn by 2016.

As with all new products, the costs will become more competitive as more providers enter the UK market. We warmly welcome the likes of Standard Life and others into the fray to ensure products remain competitive.

Even if we look at some of the products available now, we believe that consumers can get excellent value for money. The benefit of offering a guaranteed income for life, with the potential to increase income as markets perform, is very attractive. Clients also benefit from access to their funds and a guaranteed death benefit. An average investor in our pension or bond product would usually pay around 2.5 to 3 per cent charges for all these benefits. That includes the guarantee, annual management charge and fund management fee.

In a market that has been served essentially by two product types – annuities and drawdown – it would be a shame to dismiss an innovative product that gives consumers real choice by linking it incorrectly with a different product in the US. I am sure I can speak on behalf of other third-way providers when I say that variable annuities are set to become a valuable retirement solution for UK consumers.

Mike Kalen is chief executive of Hartford Life

Recommended

Pension limit may be halved

The Chancellor may reduce the maximum pension contribution eligible for tax relief from £225,000 to £100,000, according to Budget predictions from chartered accountants MacIntyre Hudson.The firm says Alistair Darling may see the current level as having the potential for higher-earners to abuse the system and could cut back the annual limit on tax relief.Tax principal […]

Deadline approaches for Jupiter India fund deal

Investors in Jupiter’s India fund have until March 3 to take up the fixed offer price of 50 pence a unit. The fund aims to achieve capital growth by investing in companies operating or residing in India. Manager Avinash Vazirani says the recent market turbulence marks a good entry point for long term investors. He […]

Dampier defends best ideas

Hargreaves Lansdown head of research Mark Dampier is still backing Skandia’s UK and global best ideas funds after a difficult 12 months.

Band could play havoc

Standard Life’s head of pensions strategy John Lawson believes the law of unintended consequences is going to see personal accounts wreak havoc with existing provision.

Guide cover

Guide: Johnson Fleming produces auto-enrolment checklist

For a job as big as managing the auto-enrolment changes, it’s important to know what has been completed and what still lies in front of you to give you the reassurance that everything is in hand. Getting the planning and project management right at the outset can help you see the path ahead and ensure everyone knows their roles and responsibilities. To help with this, Johnson Fleming has produced a checklist outlining every step that needs to be taken when preparing for auto-enrolment.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com