Aegon has launched Secure Retirement Income, an alternative to annuity or flexi access drawdown, both of which have limitations due to low interest rates and market downturns. Research by the insurance and pension company and asset manager shows that people saving for retirement want secure income, access to capital and flexibility, according to Gavin Casey (pictured), distribution director and deputy managing director, retail at Aegon UK.
“This suggests that there is demand for a third way or type of product that sits in between a traditional annuity and a flexible drawdown policy,” said Casey. “We believe that demand for these products will increase in the UK. “
Capital protection remains an important concern for clients, said Casey. “We offer those kind of solutions, but at this stage we felt the number one need for individuals is income… Aegon has taken a different approach and focused on a lifetime income-style guarantee solution that can be overlaid with other products, such as variable annuities or structured deposits,” he said.
Research by the company, which tested appetite for the product among over-55s, found that income certainty is the most important retirement income feature (61%), followed by the ability to access capital when required (32%). The research also revealed that the majority of people (56%) have either experienced or expect to experience a lump sum expense into retirement, making flexibility a requirement.
The product allows customers to keep their pension invested while Aegon provides a minimum income guarantee. The guaranteed minimum income for life is 3.2% for those who start taking an income at 55 years old and 4.05% for those who start at 65. Critically, in the event of death, funds can be passed to beneficiaries and additional death benefits can be selected.
The product is available on Aegon’s platform and can be combined with other investment options. For example, customers and their advisers can chose to mix it with flexi-access drawdown and other investments, allowing flexibility with a guaranteed income. Furthermore, investors can come out of guaranteed income at any time, switching into any other investment on the platform including its range of open-ended variable annuities (Secure Income - Guaranteed Income Option; Secure Capital - Guaranteed Capital Option; Investment Control - Secure Income Option; Secure Lifetime Income; and Investment Control).
Structured products, said Casey, are in demand by people that want a capital guarantee – or some sort of withdrawal guarantee – and a fixed-term investment, and Aegon expects demand for structured deposits to increase in light of new pension freedoms. “We definitely see some themes emerging through the pension freedoms and how people are responding to those freedoms,” said Casey. “There have been a number of developments in the investment market and people are looking for investment solutions including structured products.”
Secure Retirement Income offers two Aegon SRI Managed Volatility funds – Cautious and Conservative – which have typical equity weightings of 40-45% and 30-35% respectively. The service charges are: 0.53% for fund management, 0.30% for product, plus an explicit guarantee charge between 0.9% and 1.55% depending on whether death benefits are selected, meaning total charges between 1.73% and 2.38%.
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