Hybrid retirement income products are set to become as essential part of the planning process for one in four advisers, and 70% say that they will become a part of their toolkit in the near future, according to a report from Defaqto and Retirement Advantage.
The research, conducted in association with YouGov, asked 113 advisers for their views on hybrid products and provides information around how best to advise on them.
Hybrid products combine an annuity with a drawdown product within the same wrapper. There are two such products on the market, the Retirement Account from Retirement Advantage and the Enhanced Retirement Account (ERA) from Partnership.
Both aim to balance a clients’ desire for flexibility (via investment and drawdown solutions) with their need for security provided by an annuity. On death, the annuity side of the product is transferred to the drawdown side meaning they benefit from inheritance tax relief.
The report argues that issues with this type of product can include the requirement for a lot of advice. It said: “If the investment strategy is wrong or too much income is taken out the capital value and future likely income will suffer.
It added: “If the product sits under a client money regime as opposed to an insurance regime they will benefit from lower levels of protection.”
The Retirement Account and ERA differ from blended solutions such as MetLife’s Retirement Portfolio in that they are aimed at the mass market, and best suited to clients entering retirement while blended solutions are best purchased when clients are in the accumulation phase.
Retirement Advantage said it had seen £530m of quotes in the last six months, with £50m signed off. Pensions technical director Andrew Tully (pictured) said: “When we questioned customers via advisers we found that clients wanted drawdown and security in equal measure – it was a 50/50 split – there is a clear market for hybrid products of this sort.”
Partnership head of product development Mark Stopard said of the ERA: “Of course, traditional blending has always happened.
“A client can take out an annuity and have additional money invested in a self-invested personal pension for example but the single wrapper means there is one annual statement, one P60 and a single plan from the adviser.”
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