The past four years or so have seen the arrival from the US of a new kind of pension product, offering people a more flexible retirement income, plus the assurance of a guarantee protecting their capital or income levels.
But does the decision by American insurer Hartford Life early in May to pull out of the UK market spell the end for this new breed of so-called third-way or variable annuities?
Third-way annuities are billed as a halfway house between the security of ordinary annuities that pay a set income for the rest of your life, and the flexibility and growth potential of income drawdown, where your pension pot remains invested in the markets.
They sound like a useful solution for the phased retirement that many of us face. But the past year’s turbulent conditions have proved too much for the Hartford at least.
“Variable annuities have suffered from bad timing,” says Nigel Callaghan, pensions analyst at broker Hargreaves Lansdown. “They face a falling investment market, spiralling contract guarantee costs, overly complex product terms and a sceptical public.”
Martyn Laverick, marketing director of IFA AWD Chase de Vere, agrees that timing has been a problem. But, he says, popularity was not an issue.
“The Hartford had started to make good headway in the UK and Europe; it ended up partly a victim of its own success, because offering the guarantees on contracts became more costly than it could ever have imagined," he explains. ”With serious problems in the US market as well, it had little choice but to retrench and focus on its home market."
Hartford’s 18,000 UK policyholders will continue to be looked after by its Dublin-based service operation. AWD Chase de Vere is reassuring clients that their pension pots are safe and existing guarantees will be honoured.
But what lies ahead for the wider third-way market, which consists of offerings from Lincoln, MetLife and Aegon?
Callaghan believes the market is not dead: “The other companies are expected to continue promoting variable annuities in the UK, although trading conditions are likely to remain unfavourable for the rest of 2009.”