'Still a place in the market'
Nucleus opts for bigger role in annuities
The Edinburgh-based adviser-influenced wrap Nucleus Financial believes there is still a place in the market for annuities which some companies are abandoning ahead of the shake-up in pensions next year.
Nucleus, headed by David Ferguson (pictured), has launched a bespoke annuity portal onto its platform.
Access Annuities, which is delivered by Spire Financial, allows advisers to quote, underwrite, track and apply for an enhanced annuity through the Nucleus wrap for the first time.
Nucleus says this underlines its commitment to offering a full range of retirement options – which includes annuities – to ensure its users can deliver the best outcomes for their clients.
Developed in tandem with the Nucleus adviser community, who have been piloting the scheme for the last 12 months, Spire Financial delivers the Access Annuities service through the Nucleus platform, offering a choice of annuities.
Jon Gwinnett, pensions technical manager at Nucleus, says: “We all know that this year’s Budget changes have turned the retirement income market on its head, with many talking – somewhat dramatically – about the ‘death of the annuity’.
“In reality, the pension reforms outlined in the Budget have rendered the annuity superfluous to some, but not all. For a great number of people, an annuity is still an appropriate product and, through our partnership with Spire, we aim to ensure our users can provide clients with a suitable variety of options for their retirement.”
Annuities – a guaranteed income for life – are undergoing their biggest change in generations following the Chancellor’s surprise announcement in the Budget to scrap rules on buying them in retirement. From April policyholders will have greater freedoms over their pension pots.
Insurers selling annuities take on the risk that markets slump or the retiree lives longer than their pot is supposed to provide. The alternative is a “drawdown” product, which allows the pensioner to take out a portion of the pension every year and manage it themselves. Not all pension schemes offer this option.
Annuity payouts have weakened in recent as interest rates have declined, and returns are expected to be depressed for several years.
Consequently, fewer are being sold. Demand for annuities is said to have halved in recent months while the drawdown market has doubled. This is a big concern for insurers as drawdown products typically achieve 1-2% margins, while annuities have achieved up to 10%.
What is being termed a revolution in the pensions industry has forced providers to review their products and develop new ones, although few have come up a definitive range.
It is, however, a major factor in the proposed merger of Aviva and Friends Life.