Those at retirement and their advisers face difficult choices regarding retirement income. An annuity provides income certainty for life but at present they are a one-way decision and low interest rates currently limit the amount of income on offer. By contrast, flexi-access drawdown enables people to vary the amount of income they take but market downturns may reduce the value of their savings and the income they can afford to take.
Research by Aegon, which tested appetite for the product amongst over 55s, found that income certainty is the most important retirement income feature (61%) for people, followed by the ability to access capital when required (32%). The research also found that the majority of people (56%) have either experienced or expect to experience a lump sum expense into retirement, making flexibility a requirement.
Secure Retirement Income provides an attractive alternative by taking the key benefits of both an annuity and flexi-access drawdown. Customers keep their pension invested but Aegon provides a guarantee on the minimum income they will receive. 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 years old. Critically, in the event of death, funds can be passed on to beneficiaries and additional death benefits can be selected.
Secure Retirement Income is available on Aegon’s platform and a key additional benefit is that it can be combined with other investment options. For example, customers and their advisers can chose to mix Secure Retirement Income with flexi-access drawdown and other investments allowing the customer to blend flexibility with a guaranteed income. Furthermore investors can come out of guaranteed income at any time, switching into any other investment on the platform. So it is a flexible solution for those who may change their mind or whose circumstances change.
A feature of Secure Retirement Income is its unique ‘Monthiversary’ feature which means at the end of every policy year, Aegon look back to see what the fund value was on each of the corresponding monthly anniversaries. This provides 12 opportunities every year to lock in a higher income base.
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 charge between 1.73% and 2.38%.
Duncan Jarrett, Managing Director, Retail at Aegon UK said:
“Annuity sales continue to fall as people seek greater flexibility and higher returns. And yet our research found that income certainty is the most important retirement income feature. For advisers and their clients, it may seem like a choice between the certainty of an annuity versus the flexibility of drawdown where returns can be unpredictable and people may have to adjust their income depending on their investment performance.
“There’s a clear gap in the market for services that provide the income certainty of an annuity with the flexibility of drawdown and we believe these services have come of age.
“There is a cost to providing a guarantee but we believe that there is also a clear benefit for customers which means that should they be unlucky enough to retire into a market downturn, they can sleep easy in the knowledge that their income is protected whilst retaining flexibility over their savings.”
Phil Casey, Partner, Focus said:
“We included the benefits afforded by the Secure Retirement Income option during our platform due diligence. We want to maintain client pension assets in one place, and this is the only option which allows us to do this whilst delivering a guaranteed income for life as part of a client’s retirement planning. Clients need to cover off their minimum income requirements, and this will allow us to deliver that”.
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