State Street Global Advisors is planning to launch a deferred annuity drawdown hybrid product of the sort that benefits from safe harbour legislation in the US.
The product, which is likely to be launched in the US before it arrives in the UK, aims to take out tail-end longevity risk through a deferred annuity from age 85, bought at the outset of the contract, allowing for easier management of drawdown in the intervening period.
The US has introduced safe harbour legislation to protect plan sponsors who recommend Qualifying Lifetime Annuity Contracts (QLACs) as well as other annuity products, provided they follow a prescribed selection process. Deferred annuity purchases in the US have increased significantly in the last five years.
State Street says a UK launch is not likely until 2018 at the earliest as it wants to trial the concept in the US beforehand.
Speaking at a Barnett Waddingham seminar on retirement innovation this week, SSGA head of DC investment strategy Alistair Byrne said: “We see a potential combination of investment and insurance, using deferred annuities from age 85, although we might not call it an annuity. This makes drawdown easier to manage.
“In both the US and Australia they are looking at the role of annuitisation, and legislators are looking to remove obstacles to it. We think annuities will come back in due course. But we are not going to hurry into the market – and we think safe harbour is a key to getting the concept off the ground. Without safe harbour you will struggle to overcome the concerns of trustees that it is a good solution.”
Wealth at Work director Jonathan Watts-Lay said: “Why have an annuity when you can buy corporate bonds and hold them to maturity and get roughly the same return, and your money back?”