Unit-linked guarantees - round table at Money Marketing

By Emma Simon

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It is not surprising the retirement landscape has shifted following the seismic upheaval in the pensions market.

Pension freedoms have created the space and opportunity for new products to emerge and for older products to be revisited. This is the case with unit-linked guarantees, products which in some circles carry a degree of controversy.

Not everyone in the industry welcomes the return of these hybrid policies – also known as guaranteed drawdown. Some argue they do not provide value for money for consumers, and are of more benefit to those selling or running these plans.

Speaking at a Money Marketing roundtable debate on the pros and cons of these specialist retirement products

Retirement Intelligence director Billy Burrows believes it is clear many customers have a need for this type of guarantee.

He said: “Unit-linked guarantees have a very good customer proposition, particularly for savers in the “squeezed middle”.

Burrows described the pensions market as falling into three segments. He made the point that those with more generous pots (typically upwards of £250,000) are already well serviced by the financial services industry, and there was little the industry could do for those with very small pots.

But he said unit-linked guarantees may serve as a useful tool who fall between these two camps.

“Prior to the changes these savers may not have had a large enough pension to go for traditional drawdown, but now they are interested in the opportunities offered by pension freedoms.

“They don’t want to hand over the entire pension fund to an insurer and lock into an annuity at a historically low rate. But while they like the idea of more flexibility, they are also telling us they would liked to secure some income, at least to cover essential expenses.”

He added: “Unit-linked guarantees offer a way to navigate a third way between annuities and drawdown for this group.”