A leading provider in the enhanced annuity arena, MGM Advantage, is  lining up a ‘third way’ product for next year. It is planning to launch a ‘third-way’ unit linked product in 2009 as part of a drive for innovation in the ever growing pension annuities space.

Their sales director Aston Goodey, previously of Prudential, said the plan would be aimed at people aged between 50 and 75, and would be linked to a pension annuity rather than an income drawdown contract. The idea is that it would be asset backed, offer some income protection and possibly some sort of capital protection. Definitely still on the drawing board ! He even likened the product to with-profits annuities.

Interestingly, they are keen to avoid any associations of the product with variable annuitiy contracts, which have so far received a pretty much lukewarm reception in the UK at-retirement market. MGM Advantage claim the market is ‘crying out’ for innovation.

So, the end result is that they are likely to launch a new annuity based contract, with flexibility, but they don’t want it badged as a variable annuity. Interesting dilemma.

Scenario: individual being retired by his company on ill health grounds. He is aged 59 and has a company pension and also a private pension. What might be the position if retirement income is taken based on ill health? Might he lose out financially?  

The Pensions Advisory Service say on this matter: If he qualifies for a pension from his employer’s scheme based on ill- health then he should not lose out on the amount of pension he gets.
If the employer’s scheme is a salary- related scheme, the rules often provide for an increase to the pension (the retirement income) for someone suffering from ill health, compared to someone choosing to retire early in normal health. However, there could be special terms in the scheme’s rules.

If his pension scheme is not salary- related (and this goes for the personal pension he has too), he should make sure that his medical condition is taken into account when a pension annuity is purchased.

Some annuity providers may be able to offer him better terms (and therefore a higher annuity income) because of the ill health – and this is often called an enhanced annuity or an impaired- life annuity. He might therefore get the best annuity rates via this route, but, as always would be wise to seek advice.

More work has been done to try and establish how much retirees could be losing out on in terms of their pension annuity retirement income because of the system we have with annuities in the UK. Figures have been released from a leading annuity player suggesting that retirees could be losing out on five years’ cash. Why? Because they are consistently failing to access the best annuity rate available to them at retirement.

This research has concluded that some losses equate to wiping out more than five years of income in retirement, perhaps more than £37,000.

Currently only 40% of retirees shop around for the best annuity rate, otherwise known as exercising their Open Market Option (OMO). Experts say that the OMO should be the default option to help savers secure a wealthier retirement and that in its current state, the system is merely designed to line the pockets of insurers.

The current regime routinely leaves investors out of pocket and is plainly not fit for purpose. Some say it needs to be scrapped immediately and replaced with a fairer, clearer system that will benefit the hundreds of thousands of individuals retiring each year.

Losses suffered by taking the pension providers annuity offer and not shopping around can be sizeable. Example: a woman retiring at age 60, with a £100,000 pension pot, expected to live to 88. The difference between the best and worst annuity deals, at £6,708 and £5,366 per annum respectively based on current annuity rates, would equate to an annual loss of £1,342, or an average lifetime loss of £37,576, more than five year’s extra income.

This is only an example, but does illustrate clearly the value of shopping around utilising the OMO, particularly if even higher annuity rates could be gained from an enhanced annuity or impaired life annuity if the retiree has a lifestyle or medical condition.

Enhanced annuity provider and supplier of equity release products, Just Retirement, has confirmed that there are interested parties involved in discussions about taking over the company. They have made a statement to the London Stock Exchange confirming this, saying it has received expressions of interest which could ultimately result in an offer for the Company.

On 7 November, Just Retirement, which is 52 % owned by venture-capital group Langholm, had 294,703,278 ordinary shares of 0.1 pence each in issue.

The group’s recently announced new business figures revealed it had generated pension annuity sales of £150.4m, up 5 % against the previous quarter and broadly flat against the comparable period of the previous year’s figures.

In a fast developing market for annuities it will be interesting to see how this story unfolds.

Just Retirement, a leading annuity provider, specialising in enhanced annuity products, has issued guidelines for advisers when dealing with unsecured pensions and annuity options. They say that in  the current economic climate clients are more concerned about how to get the most from their pension pot; the best retirement solution.

The guide issued by Just Retirement covers unsecured pensions and annuities and is available to all independent financial advisers (IFA’s) who sign up for the campaign it is running for better annuities.

They say that customers will need at least £300,000 in their pension pot to maximise the opportunities available in an unsecured pension arrangement, such as tax benefits, whereas annuities will benefit those seeking a guaranteed regular income.

The flexibility of an unsecured pension is attractive, but they are really only of benefit to those with a relatively substantial pension fund.

A pension annuity contract can bring much greater peace of mind to individuals due to decreased risk and the built in guaranteed retirement income.

As this is clearly an area for specialist advice, check out if this is an area right for you.