AllianceBernstein has designed a capped drawdown product it says will give pensioners "breathing space" before they buy an annuity.
The ‘retirement bridge' would work in a similar way to an income drawdown product, where retirees receive an income from money that remains invested within a fund structure, but would be available to average pot sizes of £25,000 with fees at less than 1%.
The fund manager argued giving people a transition period before they purchase a lifetime annuity would improve their decisions about their retirement needs and could increase their income by 25% at the age of 75, based on gilt yields at current record lows.
AllianceBernstein head UK DC Investments David Hutchins said annuities were better value when life expectancy is down to 10-15 years, instead of 25.
He said: "Most retirees face an impossible choice, between an annuity they do not need and a traditional income drawdown product they cannot afford.
"With life expectancy for a 65-year-old retiree having nearly doubled to just fewer than 25 years since the 1980s, it makes no sense to be rushed into the wrong choice at the point of retirement.
"We recommend individuals consider putting off buying an annuity until they have a clearer understanding of their lifestyle and income requirements in older age and make use of a ‘retirement bridge' to smooth the transition from working life."
The annual pay-out rate from the retirement bridge would be age-related and increase depending on the size of the pot.
The funds themselves would adopt a similar age-based strategy to the asset managers' target-date funds which form the basis of its approach to the accumulation phase of defined contribution.
AllianceBernstein expects retirees to stay in the funds for up to 5-10 years, at which point "safeguards" would kick in to get them to purchase an annuity.
Independent research conducted by the provider found that individuals make a better decision about their retirement needs after the point of retirement, which is traditionally when an annuity is bought.
The launch comes after the industry raised concerns about the value consumers are getting from the annuity market.
A report released in February by the National Association of Pension Funds and the Cass Business School found savers were losing billions every year through "murky pricing" (PP Online, 6 February).
The Association of British Insurers launched a code of conduct for annuity providers to ensure consumers can shop around for annuities in March (PP Online, 5 March).
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation