The 2015 Pensions Freedoms ushered-in a new era for the Drawdown product as the pre-eminent instrument of decumulation for UK retirees.  But the subsequent collapse of individual annuity sales didn't take so long before it started to level off, and the recent changing rates environment has seen guaranteed income products firmly back on trend.

Whilst the 8/9 years subsequent to Chancellor George Osborne's decision to liberalise the retirement industry have undoubtedly witnessed a new generation of more flexible individual annuity and hybrid annuity products (typically structured to include a degree of monetisation in the form or Equity Release), there's also been a sense that innovation has been held back by the tendency of life insurance companies in the UK to maintain a degree of separation between the development and distribution of DC SIPP products, which are typically managed and marketed by their captive asset management companies, and Annuities business, which often sits at the heart of the Life co entity itself.

There are signs that these organisational barriers are being broken down, as the industry embraces new technology to fill the void between these two product sets, which have historically offered such divergent characteristics in security, volatility, flexibility and tax planning. Last year, Phoenix's Claire Altman had the following to say about these trends:

“With DB provision continuing to decline, stock market volatility on the rise and people continuing to under-estimate their own longevity, annuities can play a valuable role in providing income certainty. However, if this market is set to grow again it will need to address the misconceptions that many people hold about annuities and make a case for how they can be used in combination with drawdown - rather than as an alternative to it."

A number of insurers are now looking at developing a variety of bridging instruments, which act as links between different points in the decumulation process for each retiree - often in the form of a Managed Volatility or Controlled Equity funds. In the past, the derivatives required to manage these funds have incurred significant capital costs which have ultimately been born by the retiree, but more sophisticated technology and balance sheet management is beginning to address this problem. Fintech GBST recently published a white paper on the topic, in which it argued for this sort of investment in product development to be matched by platforms which better embrace the range of instrumentation involved. Money Marketing's Momodou Musa Touray picks up the story...