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Will temporary annuities take off?

The news that LV= is looking to launch a fixed-term annuity, revealed in this week’s Money Marketing, has prompted a thoroughly positive response so far.

Living Time is currently the only provider in this market. Its income plan offers customers a guaranteed income for a minimum of three years up to age 75 and a guaranteed capital value at maturity, which is determined at outset.

The firm has suffered somewhat as a result of AIG’s near collapse in September, because its underwriter, Alico, is a wholly owned subsidiary of the insurer.

Alico has been placed in a special purpose vehicle in preparation for a sale and while policyholders’ money has always been secure, the setback has impacted Living Time’s growth and probably the expansion of the market.

But LV=, a big player in the enhanced annuity market, is planning to move in with a similar product. It is also understood to be considering a fixed-term annuity that gives customers investment options.

Head of annuities Matt Trott says: “We are looking at the space in the market between an annuity and an income drawdown contract.

“We are fairly progressed. We are still in the planning and feasibility stage but it is looking promising. We are very excited about the opportunities there.”

Living Time marketing director Steve Lowe says: “If this is true, we are very pleased. We need more providers in the market to supply the increasing demand from advisers and their clients for modern alternatives to traditional lifetime annuities.”

Annuity Portal managing director Malcolm Thomas says: “Living Time had a bit of a disadvantage with the AIG link, which I cannot imagine did them much good at all when they were trying to launch such a new and innovative product.

“I think it will be good to have LV= in there to grow the awareness in the marketplace, particularly as they have a more public presence through sponsoring the cricket and advertising on the TV.

“All of these products are just chipping away at the gap between conventional annuities, which can only be positive for advisers and clients.”

Annuity Direct director Stuart Bayliss agrees: “One of the major issues that is slowing down the take-up of Living Time’s product is the fact that there is no competition so having more than one company there will encourage many more advisers and clients to look at the temporary annuity option.”

Do you agree that the retirement market is crying out for greater choice? Will fixed-term annuities take off? Would you be more likely to recommend them if the market was a bit more crowded?

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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Will temporary annuities take off?
    Some of us have been [selectively] recommending the Canada Life Annuity Growth Account for 10 years or more. It may not offer a guaranteed maturity value but the choice of underlying investment portfolios is fine and the product can run not just to age 75 but to age 85. I know of no other product that can do that. I don’t think the market place needs more choice when it comes to retirement income options. What the country’s entire pension funding and retirement income framework needs is a radical, genuine, clear-headed root and branch overhaul, reform and simplification. What we have now is an appallingly tangled mess that Labour has done nothing but make worse almost from the day it took office.

  2. Temporary Pension Annuities
    Julian feels we need a pension Simplification exercis, well yes please, but nothing like the last one, thank you very much !! Re Temporary Annuities, I would not trust the whole of my capital to a provider tob have it’s return “Guaranteed” by 3 rd party drivatives; no way Jose ! I would be interested in a 3 /4/5 year tmporary annuinty I could buy with a drawdown or SIPP fund where I only parted with the money which would be repaid to me over the term, leaving the balance of my capital invested at my choice. The snag I know will be that as the lump sum will be much smaller, Intermediaries will get little commission on the deal. If it cost £40K ish to buy £10K pa for 5 years, then 1% of the £40K = £400 would be the most that could reasonably be sucked out in commission, any more and after providers other costs the rate would be dire.

    I suspect that such a product would only be effective in the fee paying advice market where large fund holders might put 10%-20% of their drawdown fund into a 3 to 5 year temporary annuity. Who knows, it might even catch on in the E Sipp market as long as it coud be provided on an execution oly basis at very low cost.

  3. Hopefully, but limited profit potential.
    Large drawdown investors can simply buy a raft of short dated gilts and cash them in tranches to generate cash flow over 3-10 years.

    So would such a product be aimed at those who’s needs were too modest to buy such a raft of Gilts ?

    Woud we be then be talking about less than £10K pa; so less than £40-50K purchase price ? Costs in the advised market on such small parcells could render this unecconomic .

  4. Will temporary annuities take off?
    Wallets are tight. and you better believe it that taxes are on their way.
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  5. I am currently looking for a company that can give a better rate than the 0.4% that my Abbey pension fund is giving at the moment. I find it strange that over 5% is attainable on a fixed term 5 year bond but nothing like this rate is available within a pension plan on a fixed term option. At this stage I do not wish to transfer the cash fund into an equity fund and would like to take an annuity in 5 years time.I believe the Living Time offer over 5 years equates to a little over 2% if the cash is left for 5 years and no money taken. With apparently no competition in this field it seems that this company can offer what it likes and not have to compete with interest rates available in the open market.There must be many people who are in a similar position with a cash fund earning little interest and wish to defer the purchase of an annuity for a period of only 3 to 5 years, an not take the risk of changing to an equity fund. So lets have some real competition in this field.

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