Zurich is the latest provider to bring more innovation to the at-retirement market with a proposed guaranteed drawdown product. It will allow an income to be taken as flexibly as drawdown but with the option to convert to a lifetime income in the future.
Zurich is one of the world’s largest insurance groups, with over 60,000 employees serving customers in more than 170 countries they have over $32bn in shareholder equity.
The new product is aimed at those who like the ability to take variable income such as through drawdown but also fear the possibility of running out of money.
As yet the finer details of the plan are unclear, however it seems at the outset, the customer will be able to choose a protection element alongside their drawdown plan to allow for conversion into a life time income in the future. There will be specific ages at which a conversion can occur but unlike guaranteed drawdown products from the likes of MetLife, it will not ‘lock in’ any growth in stock market performance.
It will be available through its own platform but as yet Zurich have not given any indication of price or charging structure. It will have to be competitive however as MetLife, AEGON and AXA have been active in this sector for a number of years.
Zurich are responding to some of their own research which showed a marked uptick in demand for drawdown since the reforms came into effect in April. They found, unsurprisingly that there had been a massive shift from those purchasing an annuity to income drawdown, however that 18% feared running out of money.
Zurich’s research since the reforms found
Zurich’s post-pensions freedom research found…
- One in ten over-55s in defined contribution pension schemes has dipped into their retirement savings under the new freedoms;
- 69% of over-55s have not explored their options under the new freedoms (37% were ‘not ready’, 26% had already bought an annuity);
- The main reasons for not accessing pensions after exploring options were:
- 54% were not ready to make a decision;
- 34% were keeping their pension funds invested and tapping into other assets first;
- 18% claimed the fear of running out of money by taking a lump sum or going into drawdown was holding them back;
- 7% said their pension provider did not offer the option they wanted.
The pace of change in the drawdown market since April has been rapid. It has become a much more lucrative and competitive market and providers are constantly changing their pricing structure and propositions to gain market share.
The good news for the consumer is that providers are adapting to the concerns of the investor. With so much choice and variability of options it’s always going to be overwhelming to a new investor however.