The ABI has called for greater product innovation in annuities to give investors more flexible optio...
The ABI has called for greater product innovation in annuities to give investors more flexible options.
The association believes there is room for further growth in terms of the range of products available on the market, noting that developments such as unit-linked annuities have grown in popularity.
Annuities have been criticised for the inflexibility of the income they provide.
Stephen Sklaroff, ABI's deputy director general said: 'Our analysis shows the annuity market has developed enormously. More products have been launched in the past two years than in the previous 10 but the benefits of annuities are often ignored.'
Research by the ABI shows that having represented just 5% of the pension market in 1998, annuities represented nearly 20% by 2000.
Chris Curry, author of a recent ABI's report, Is there an annuities problem?, said developments have also been made in the area of impaired life annuities, which pay higher rates to groups with decreased life expectancy, such as smokers or the terminally ill.
Prudential has recently launched its flexible life annuity, which allows consumers to decide their own level of income annually, while Canada Life's annuity growth account provides a series of temporary annuities that enable the level of income to be reassessed at specific intervals by using investment-backed funds.
Curry said: 'These innovations are the sign of a competitive market in annuities. The total amount of pensions annuitised by individuals has grown from just over £3bn in 1995 to over £5.5bn by 2000.
'As the amount of time spent in retirement and receiving income from an annuity increases, maximising returns, and hence income, over a longer period of time may require a different investment strategy.
'The recently introduced flexible annuities may be able to provide an income stream to match variable expenditure patterns, but must first prove themselves in the market place.'
The association has also expressed a need to widen the choices available to consumers with smaller funds, in particular for those seeking alternatives to annuities.
The current heavy regulation of income drawdown minimises the risk of decreased income but imposes high compliance costs, Curry said.
He added: 'A simpler mechanism, with less emphasis on protection but with increased risk, may increase the alternatives available to those with smaller pension funds.'
The ABI also believes that the problems associated with annuities are often overstated.
Research conducted by the association shows that while annuitants are receiving lower rates today as a result of pressures on interest rates, they are also experiencing increases in their pension funds.
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