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The single life

Advisers have slammed providers’ single-tie annuity deals, claiming they create poor value and damage the progress made by the industry to boost usage of the open market option.

Prudential provides annuities for policyholders at Royal London, Zurich, Pearl and Threadneedle while Legal & General has a similar deal with Skandia. Pru is understood to pay around 3 per cent for the business.

Aegon is believed to be looking at brokering similar deals with other providers and a number of current partnerships are coming up for renewal.

Annuity Direct director Stuart Bayliss says the partnerships are “hugely backward-looking” adding that they restrict competition on the open market and take value away from consumers.

He says: “The Omo can now deliver full market value, including impaired and enhanced as the default provision for all vestings. It must be allowed to do so and the self-interest of the product providers must give way to treating customers fairly.”

Over 20 per cent of Pru’s annuity sales came from single-tie deals in 2008, with 18 per cent through intermediaries. Bayliss says since brokering these deals, Pru has significantly reduced its competitive position in the Omo market.

The Retirement Adviser head of retirement planning Nick Flynn agrees. He says: “These single-tie deals are hugely attractive to both parties, the ceding insurer loses a lot of this business anyway but this way they can take an enhanced level of commission for it. Meanwhile, the receiving provider gets a steady stream of income, which they do not need to offer the top rate to obtain.”

But Pru spokesman Darragh Leeson insists the process treats customers fairly. He says: “These customers receive more competitive annuities from a market-leading provider while also retaining the option to access the open market.”

In other news, Life Trust’s decision to close its insurance arm to new business may signal a wider problem for niche players in the at retirement market, according to advisers.

Life Trust Insurance revealed this week that it was shutting up shop after failing to raise the capital required to stay afloat. The subsidiary recorded lower than expected sales of its longevity income plan since launching in January 2008, citing market conditions.

Policyholders will be offered their original investment back plus a 5 per cent ex-gratia payment.

Informed Choice joint managing director Martin Bamford says: “Life Trust is the first in this space to make the decision to close to new business. If you look at who is going to be the most vulnerable if this is a sustained downturn it is going to be the people with the more unique type of product offerings such as third way products. I would look to the variable market, or anyone who has launched anything particularly new or different and has not had a chance for it gain traction.”

Hargreaves Lansdown head of pensions research Tom McPhail says: “The product did have a bit of the black box about it and I think given what happened with structured products, people want more transparency. I sense some of the variable annuity providers are not shifting the volumes they would have liked. I think anyone with something new and opaque is likely to struggle.”

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