Retirement Planner talks to Matt Trott about how the annuity market is developing to meet shifting retirement patterns.
How is the fixed-term annuity market progressing?
The market is progressing extremely well. I feel that advisers have embraced the flexibility that a fixed-term annuity can give clients.
Social changes in the UK mean that the standard level annuity isn’t the only option for people any more they are looking for more flexible products and we are finding there is a lot of interest in these products as a result.
Do you feel that clients are getting to grips with the risks associated with fixed-term annuities?
Probably the most notable of these is that annuity rates could have fallen during the term and the client finds themselves having to settle for a lower annuity.
I think advisers and their clients have got to grips with the risks associated with fixed-term annuities.
I know our literature has always made these risks very clear and the customers understand they will need to purchase another product at the end of the fixed term, and that annuity rates could have decreased during that time.
Whether this risk is acceptable depends on the client and what they want from their annuity product. The days of people looking for a salary replacement from a fixed date are gone.
These days people are easing into retirement or returning to part-time work midway through their retirement. People’s retirements are also lasting much longer and their needs change over time.
Some people will need a higher income at the start of their retirement, but others may find their income needs grow as they progress through retirement. People know they can’t fix their income needs for the rest of their life at one spot in time.
They need to be able to review their income, and hence the product they receive it from.
We have seen a great deal of innovation in the market with both Just Retirement and Aviva launching new products. How do you see this developing over time?
I think any innovation in this market is good but we must be sure that thisinnovation does not introduce complexity into the equation.
These products need to be clear and easy to understand if people are to get to grips with them and start using them. I think the opportunity to innovate is one of the beauties of this market, though I think we have to be careful that we don’t innovate too quickly.
There is still a huge gap between the annuity and drawdown spaces and there is room for further development within the investment linked area particularly with guarantees.
People have different definitions of risk and we need to be able to cater to that.
The growth in enhanced annuities has been huge. Where do you think the market can go from here?
Enhanced annuities have made phenomenal progress over recent years and there continues to be more scope for this market to grow not just in the IFA market but in the internal annuity market too.
We still need to connect with those customers who know they can increase their income by shopping around for the best deal, but are unsure how.
I think we need to do this in several steps. First of all we need to make sure people understand that it is their right to shop around for an annuity. Secondly we need to make sure people understand the difference shopping around can make to their income and lifestyle in retirement.
Finally we need to look at whether people actually know how to shop around.
These latter steps are the areas we need to strengthen. I am a member of the Pensions Income Choice Association (PICA) and we have been at the forefront of the discussion of how to improve this process.
We appear to have agreement that the situation has got to change. We now need to make sure that any new process will be practical and in the best interests of the customer.
Matt Trott is head of annuities at LV=
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