Investec launches first deposit aimed at UK retirement market

Following the pension freedoms which came into force this April in the UK, Investec Structured Products has launched a new structured deposit aimed at the post retirement market (55-65 year-olds) which combines the capital protection of a traditional annuity product with potential for boosted returns dependent on the performance of the FTSE 100 index.

The deposit – which like all deposits is covered by the Financial Services Compensation Scheme (FSCS) guaranteeing up to £85,000 – will make annual income payments of 5.25% (Option 1) or 4% (Option 2) of the original deposit for six years, returning the remaining capital at maturity. An additional income of 31.5% (Option 1) or 24% (Option 2) will be offered at maturity if the UK benchmark index closes above 90% or 76% of its initial level, respectively.

“The pricing works; we like it,” said Gary Dale (pictured), head of intermediary sales at Investec Structured Products. “Not only is the deposit subject to the FSCS, it offers investors a guaranteed maturity amount (GMA),” said Dale. “What this means is that, should the market underperform over the six years, investors should still be able to retrieve their initial capital in time to invest it in a traditional annuity.”

The Investec Retirement Deposit Plan 1, which is open for subscription until September 25, is the first retail structured deposit to be specifically targeted to the retirement market since the new pension rules came into effect. Huddersfield-based Verbatim Asset Management, which launched the first UK fund-linked deposit earlier this month, can also point to the retirement market as an inspiration for its first foray into structured products, claiming that the typical needs of a retiree (capital protection with some form of growth and income) increasingly coincide with investors at all stages.

“Feedback from over 1,000 advisers at a recent series of workshops told us that there is a demand for simple solutions that offer growth with capital protection and income with capital preservation,” said Daniel Russell, managing director of Verbatim. “The idea is to expand that investment philosophy into structured deposits to allow advisers to use structured products without breaking their underlying investment philosophy. If an adviser believes in using risk-managed funds for their clients they can now access that via a capital-protected wrapper without giving up their investment ethos and mandate.”

While the Verbatim Deposit Growth Solution stands out as an innovative solution linked to a basket of actively-managed funds, it is not aimed at the retirement market, offering only one income payment during its six-year term (1.5%) and 85% (indicative) in the rise of the underlying basket at maturity. For retirees needing periodical income payments, the Investec Retirement Deposit Plan 1 is a more credible solution.

According to Dale, the South African bank looked at wrapping the product as a note, but concluded that this would not add any value and in fact would result in additional counterparty risk. “Maybe in the future we will develop a structured note specifically aimed at the pre-retirement market, but you could argue that we do this already in the form of capital at risk notes,” said Dale. “With this product we wanted to do something different, engaging with the industry to launch something truly tailored for retirees. Deposits are a good vehicle for the target market because they are seen as more secure than other types of structured products.”

According to a survey among leading UK independent financial advisers (IFAs) conducted by Investec Structured Products, there is a strong indication that many IFA clients are now looking to explore the options offered by alternative investments, such as equity income funds, structured income products and investment bonds as well as some continued faith in traditional annuities. “What is clear is that, regardless of the pension reforms and the associated benefits and potential pitfalls, longevity of funds remains the most important factor to clients in retirement,” said Dale.