The use of structured products by pension advisors to offer decumulation solutions that allow them to retain some pension capital while offering both guaranteed income and continued exposure to the market was a topic of discussion during the Optimisation value in pension and insurance with structured products panel on the final day of the virtual SRP Europe 2021 conference held between 1-4 March.

With the average state pension in Europe around €1,200 per month, investors have long been searching for complementary solutions to add to their retirement income.

Those solutions have mostly been around general accounts from insurance products. But they themselves are challenged by the low interest rates climate, according to Walter Cegarra, CEO of FNZ Q-HUB, who moderated the panel.

“When you add tax, other charges and inflation the returns become less viable for investors,” said Cegarra.

Christian Probst, head of capital market solutions structuring Europe & North America, Munich Re, agreed.

“It is very clear that general accounts have dropped dramatically in yield, and customer expectations have not dropped with the same philosophy,” he said, adding that the intergenerational solidarity they offer still make general accounts an important element in the short to medium-term in appealing to structured products that combine a general account component with a unit-linked component.

Guaranteed capital products can no longer offer positive net return after inflation - Christian Lemaire, Amundi

“From an end-client perspective, the safety element is not diluted, and it still looks like what was previously offered by a general account product, but it offers a much more appealing upside potential,” said Probst.

General accounts remain very distinctive in the offers of insurers compared to what is offered by banks, according to Victor Toulouse (pictured), senior portfolio manager, multi asset, Axa Investment Managers, who has seen two different type of approaches.

“In the US and Europe, there is a very strong momentum around fixed indexed annuities […] we see more and more call options on multi-asset strategies or even actively managed multi-asset strategies. We also see this in Asia, particularly in Thailand,” said Toulouse.

In Southern Europe, there is a more traditional approach where the general account is used for high-level client risk profiling, which allows to offer various levels of protection with structured products coming into play, especially to back mortgages.

“We have seen innovations whereby for instance the dividends of the unit-linked part are invested along the accumulation cycle into the general account to ensure a performance,” said Toulouse.

Cegarra asked how inflation, which is expected to arrive, would impact designing an investment engine that is best suitable for longer term investments.

“Guaranteed capital products can no longer offer positive net return after inflation,” said Christian Lemaire, global head of retirement solutions at Amundi.

Providers have to propose life-cycle strategies that have a horizon of more than 20 years.


“We can have much higher expected returns than inflation and more importantly we have a very high probability of capital preservation – above 95% and from time to time it could even be 99%,” said Lemaire, whose Amundi has designed fully personalised life-cycle strategies based on the clients risk profile and their retirement income objectives.

“This is possibly now at low cost, because of innovative IT solutions such as robo advisers,” said Lemaire.

Cegarra added that it is critical for those solutions to have the right type of underlying. “The underlying has to be consistent with the outcome expected for investors,” he said.

According to Probst, it makes sense to separate the performance engine, which can go through model portfolios, and the guarantee, which is tailored to the end-client.

“For put-based structures – unit-linked structures that have a guarantee – we start with a volatility based risk management mechanism so that insurers can continue a sale at predictable prices into the future and give stability there, whereas if it is more call based structures it really depends what the end client needs,” said Probst.  

Toulouse said that he still believed that permanent protected products, be it through traditional portfolio insurance or put options, are a must in the toolkit for retirement.

“Nevertheless, it is very important to calibrate adequately the level of protection, taking into account the volatility of the underlying asset, the funding that can be offered, and the investment horizon,” said Toulouse.

A role to play

Combining protection of income with some exposure to the market during the retirement phase is possible, according to Abdess Khaled, head of structured products, Bloomberg.

“I think structured products will play a key role in this,” said Khaled. “Annuities, as a product, face the challenge [as mentioned by the other panellists] of longevity and the low yield environment.

“Annuities are going through a lot of research and innovation: you have deferred annuities, you have variable annuities with floor and cap, and in between the investor can take some market risk,” said Khaled.

Khaled remarked that accumulation itself is benefitting from structured products.

“It has the classical challenges of inflation risk, market risk and you need to derive growth in the assets, and structured products can be yield enhancing in the portfolio and add value and improve the sharp ratio,” he said.

In the decumulation phase (de-accumulation of assets in order to maintain quality of life in retirement) annuities can play an even bigger role, because the customisation is more important.

“The cash-flow distribution of a retire can be very personal where they need a certain amount of money the first 10 years, and more later,” said Khaled, noting that structured products have the ability to provide downside protection and customisation of cash flow.

“This is an area where the two can combine nicely,” he added.

According to Toulouse, distributors want a toolbox approach.

“In many countries, annuities are necessary, even though they are very expensive, you can hedge for inflation and that leaves you protected for life,” Toulouse said.

Given the current level of interest rate, annuities do not compensate for the expected income.

“They should be pure unit-linked with high volatility offering high flexibility, but you need to find a way to combine both,” said Toulouse, adding that it is a matter of sequencing risk.

“At the beginning of your accumulation cycle you want as much volatility as possible as it can average your entry point. As you go through the accumulation cycle you need some de-risking features, volatility control or adding structured products for protection […] in the decumulation phase you want more certainty with a high level of flexibility,” Toulouse concluded.