Helen Morrissey talks to Mark Stopard about Sun Life Financial of Canada's acquisition of Lincoln Financial and how they will look to develop the variable annuity market
Tell me about your career so far?
I started off my career in pensions with seven years at Mercer and I then went to work as a technical compliance director at a pensioneer trustee company. I then joined Aon and through a management buyout I joined Momentum which was then bought out by Aegon. I was working on the distribution side of group pensions. I then became head of pension and product research at Origen. I was given the option to join The Hartford as a new company looking to enter the UK retirement market – it was very much a gamekeeper turned poacher scenario. I joined Sun Life Financial of Canada towards the end of 2009. Making things at a life office is good but the most interesting thing for me is the distribution piece and I think it is important to remember that.
What will be your key responsibilities in your new role?
I will be responsible for product strategy and taking it to market. This includes product marketing and looking at our presence in the market. It’s nice to have the whole remit rather than just looking at pensions. The merger with Lincoln Financial has gone well and they already had an established team in place – some of whom have come on board at Sun Life Financial of Canada. The team comprises 18 people right now.
Our key areas of focus will be to look at the whole UK retirement marketplace. We need to establish the brand and let people know why we are different from other providers in this space.
In merging with Lincoln we have inherited a sophisticated and flexible contract in the i2Live product and so it is now the case that we need to talk to the market and get a feel for the new opportunities.
What do you think are the key lessons learned from the upheaval in the variable annuity market?
What we realise is that the variable annuity market is evolving and many providers have already moved into this space. What I think we need to see now is the emergence of some second generation providers and products to increase the potential of this market. The challenge that we face is that as yet no one has really succeeded in harnessing this potential and so the market is still in its very early stages.
However, this is very natural – the market is at a very early stage in the UK. Variable annuities are a new approach to retirement planning and we really need to get advisers and their clients to engage with it. As it stands at the moment many people don’t pay heed to their retirement options until it is too late or else they just tick the default option and we need to move away from that. We are considering how best we can educate people. There are a number of influencing groups out there.
The other point we need to consider is the economic climate. It is a hard situation for everyone now.
However, the paradoxical thing is that I feel these difficult conditions will prove beneficial to the variable annuity market as they prove they deliver what they promise. Those people who bought variable annuities before the crisis hit are realising the value of the guarantee that they bought and they will also be hoping to benefit from the upside of the equity bounce.
Many people feel that you can get the same benefits at a cheaper price by combining the use of annuities and income drawdown. Can you see this approach taking off?
We have just done some research which demonstrates a very different picture and not many people can see this approach taking off. A big part of the market has been ill served by traditional retirement products. We need to look at retirement as more of a process and take a more phased approach over time. We need to take into account the fact that people’s income needs will vary quite widely over the course of their retirement if you take things like holidays and health concerns into account. Up to 40% of retirees fit into that middle £50,000-500,000 bracket who simply can’t afford the risks of going into income drawdown but need more than an annuity can give them. I believe this fundamental dynamic will drive the market.
So where does the variable annuity market stand now?
It’s a case of refining what’s gone on before. If we look at the first generation of variable annuity style products then some were very close to the ideal but we still need them to evolve further if they are going to meet people’s needs.
We need to develop a strong customer proposition as we felt some of the first generation products were too complicated and we need to take a simpler approach.
We also had a tendency to simply import products from markets where they had been successful directly into the UK. We need to take more care in considering the tax environment and decumulation area within the UK before we look to develop further products.
Ideally what we want from the next generation of variable annuity products is the real mix of simplicity, value and flexibility – this is the holy grail of what we are looking for.
So what does this mean for the i2Live product?
We are fully behind the i2Live product. It is a very sophisticated product and I think it is the case of looking at the key attributes of what we are trying to achieve and seeing if the time is right to pull them all together. However, we really need to ensure that we have a deep understanding of the market before we do this.
What will Sun Life Financial of Canada do to educate advisers and their clients about variable annuities?
I think improving education will be an essential part of what we do. We will look to work with as many different groups as we can to improve awareness. While I feel that the customer proposition for variable annuities is relatively simple as it enables people to benefit from market upside while also having a guarantee in place, I do think that advisers need to look under the bonnet and really understand what is going on.
We see that there are real opportunities out there and we are looking at engaging with the market to further gauge levels of understanding and working out where we can help.
I feel that these are very exciting times for the variable annuity market and I’m very pleased to be part of it.
Mark Stopard is head of marketing at Sun Life Financial of Canada
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