Pension Awards 2016: best annuity and income drawdown providers
BEST FLEXI-ACCESS DRAWDOWN AND UFPLS PROVIDER
Flexi-access drawdown and uncrystallised fund pension lump sum (UFPLS) are being used increasingly, as investors become more aware of the benefits of taking income flexibly in retirement.
Flexi-access drawdown's facility that allows you to take 25 per cent tax-free cash upfront, and to time subsequent income withdrawals in line with your financial needs and tax position each tax year, is extremely attractive.
Add on the ability to bequeath the death benefits free of income and inheritance tax on death before age 75, and at the beneficiaries' marginal rate of income tax after age 75, and this is a winning combination of features, which can be particularly attractive to wealthy investors with other assets to live off.
The facility for investors to take small lump sums from their fund each year under UFPLS is a useful alternative, with 25 per cent of each chunk withdrawn free of tax and the rest of the chunk taxed at investors' marginal rate of income tax.
This can be attractive to those wishing to access smaller pension funds flexibly but without the potentially higher costs and complexity of drawdown.
The votes for this award were spread widely across 11 providers, with Standard Life the winner, closely followed by James Hay in second place and Aviva in third.
Billy Burrows of Billy Burrows Annuities said: 'This is a very competitive product category, with little to distinguish the finalists in terms of charges and product options,' but Standard Life pipped its competitors to the post, due to its 'approach to communication and funds/investment strategies, especially for drawdown'.
He added: 'Standard Life edged above the competition for its complete drawdown package, including a transparent charging policy and user-friendly website, and also a comprehensive range of investments suitable for both less sophisticated and experienced investors.'
Mark Polson of the Lang Cat also voted Standard Life his top pick, for its 'tailored drawdown and the facility to take a flexible and tax-efficient pension income across UFPLS and crystallised pots [flexi-access drawdown plans]'.
David Trenner of Intelligent Pensions plumped for James Hay as his first choice, citing the excellent service he receives, (although he admits this may be due to having hundreds of clients with the firm).
However, he insists that James Hay's administration and technical support are 'first rate'. Meanwhile, James Hay was Billy Burrows' second choice for its 'superior technical expertise and support'.
BEST INNOVATIVE INCOME SOLUTION
This award is for hybrid pension products which offer some form of guaranteed annuity plus pension drawdown built into one package, so that retirees can spend without the risk of running out of income later in life.
The guaranteed income may be secured for a fixed number of years or for life, but either way, the idea is that investors have certainty of income, with the opportunity for some investment growth as well.
These products are therefore known as a 'halfway house' between an annuity and capped income drawdown, the latter restricting investors to flexible but limited income withdrawals.
An increasing number of providers are offering variations on this theme, including LV=, JRP Group (the name for the recently merged Just Retirement and Partnership), Aegon, Royal London and Met Life - but the winner this year is Retirement Advantage.
However, with greater flexibility can come greater complexity and cost, which may account for Justin Modray of Candid Money dismissing the few innovative income solutions he had seen as 'generally awful'.
Against that, David Trenner of Intelligent Pensions, who ranked Retirement Advantage his first choice, commented: 'In a market where some insurers are still failing to offer impaired life underwritten annuities ... Retirement Advantage, JRP Group and LV= have been market leaders in underwritten annuities.'
An impaired life annuity is where the insurer offers the annuitant a higher income due to a potentially life expectancy-reducing illness.
Trenner added: 'Retirement Advantage, JRP Group and LV= offer guarantees of up to 30 years, to meet the often-heard complaint from customers that "if I die, they will keep all my money".
Retirement Advantage and JRP have annuities held within a drawdown fund to add flexibility without adding significant charges, unlike the so-called "guaranteed drawdown" products, which can sometimes guarantee less income than a conventional annuity.'
Mark Polson of the Lang Cat ranked Retirement Advantage his second choice for its 'innovation of bundling annuity and drawdown into one product and allowing unused annuity income to flow back into the product.'
LV= was first choice for Minesh Patel of EA Financial Solutions, who commented: 'LV= has developed income packages to fulfil a number of needs and criteria.
Consumers and advisers consider the ability to use drawdown, combined with fixed, enhanced/impaired annuities, to be of considerable benefit.'
He also liked LV='s capital guarantees, pointing out that although the pension freedoms have created flexibility, consumers still require reassurance that they will have an income for life.
BEST ENHANCED/LIFESTYLE ANNUITY PROVIDER
Annuity sales slumped from a peak of 466,000 in 2009 to 80,000 in 2015, according to recent figures from the Pensions Policy Institute (PPI).
This decline is due in part to the introduction of the pension freedoms in April 2015, which removed the near-obligation to buy an annuity.
But investors have been shunning annuities also because of the dramatic fall in annuity rates over the last few years, as low interest rates have driven down 15-year gilt yields (which largely determine annuity rates) to paltry levels.
However, annuities can still be useful in retirement planning, particularly for older retirees (annuity rates rise with age, as life expectancy shortens), smokers, the obese and those with life expectancy-reducing conditions.
Sadly, the PPI report also shows that only one in five of those who bought annuities in 2015 sought regulated financial advice, a drop from 22 per cent the year before - which raises the question of how many of these annuitants could have secured a higher income by shopping around and consulting an IFA.
Annuity providers estimate that 60 per cent of retirees could benefit from a higher income, for example, of up to 16 per cent for smoking, and up to 40 per cent for certain types of cancer.
Enhanced/impaired life and lifestyle annuities are sold by a select band of insurers, including Retirement Advantage, LV= and Hodge Lifetime, which specialise in insuring those with expected lower lifespans .
The winner this year was JRP Group, the name for the recently merged Just Retirement and Partnership companies, which were the winner and highly commended providers respectively in the 2015 Money Observer awards.
JRP Group was nominated first choice by Nick Bamford of Informed Choice for the 'useful suite of tools on its website, its house view publications, which are industry-focused rather than product push, and its quotation accuracy and good response times'.
David Trenner of Intelligent Pensions also ranked JRP Group in pole position for its 'market-leading rates' and 'quick turnaround of quotations'.
LV= was the top pick for Minesh Patel who rated 'its underwriting experience, decent annuity rates and the ability to negotiate better deals for consumers.'
David Trenner voted LV= his second choice for 'its market-leading [annuity] rates.' However, LV= is considering leaving the enhanced annuity market because of declining demand.
BEST ONLINE PROVIDER (PRE- AND POST-RETIREMENT)
In today's world of pension freedoms, rising life expectancy and longer retirement spans, the need for a seamless transition from the accumulation phase of saving to the decumulation phase of retirement has never been greater.
Gone are the days when investors would save until age 65, buy an annuity and disappear into the sunset.
Many of today's retirees face the prospect of a retirement lasting 30 plus years, during which time they will want to phase in their pensions gradually, as their required level of income fluctuates according to age and health factors.
More over-65s than ever are working full or part-time, whether out of financial need or choice, and partly driven by the rapid increase in state pension age, particularly for women.
Indeed, working lives and retirement spans look set to lengthen still further. Recent figures from the Office for National Statistics show that the average life expectancy for children born in 2013 is more than 90 years old.
So investors are increasingly looking for providers that can see them through the pre- and post-retirement phases until death, with the facility to use different pension options at different times, from flexi-access drawdown and UFPLS in the early phases to different types of annuity and cashing out pots in later life.
Hargreaves Lansdown, the winner of this award, was voted first choice by Mark Polson of the Lang Cat for being 'the epitome of an online investment proposition, underpinned by great service'.
David Trenner of Intelligent Pensions, also nominated Hargreaves Lansdown as his winner, commenting: 'With its abundance of resources, it remains the online pacesetter and delivers the most comprehensive online experience.
'Through the website or the dedicated app, users can review their portfolio, perform all manner of transactions, and access a rich source of market and technical content.'
A large number of providers were voted for in this category, including Fidelity and Interactive Investor (voted first and second choice respectively by Justin Modray of Candid Money), but they were pipped to the post by Aviva.
Aviva was the top choice from Minesh Patel of EA Financial Solutions for its wide choice of investment options, including discretionary fund management, shares and funds, as well as model portfolios.
Patel added: 'Consumers have access to the website which provides online projections and fund analysis tools, as well as a choice of enhanced and with-profit annuity options.'