Nest scoping out alternatives to annuities

Nest is starting research on a new breed of decumulation offerings that would offer alternatives to annuities or traditional income drawdown to the mass market.

Nest chief executive Tim Jones says the provider is in the early stages of a project to identify how retirees can achieve more suitable outcomes from their retirement pot than simply buying an annuity when they stop working.

Jones says the project will examine ways of allowing more flexibility in the way income is drawn, as well as permitting investing in more suitable asset classes than is currently the case with the majority who buy annuities in their sixties. New products could include elements of partial annuitisation, drawdown and variable annuities, he told Corporate Adviser.

Jones says: “We are looking at the journey to retirement and it is apparent that for an increasing number of people this will be something that is phased rather than happens on a single day.

“I am a fan of annuities, not least because of the benefits of mortality that they offer. But if the reality is that for the first 10 years of your retirement your cohort is not hit by mortality, then you aren’t getting the benefit of mortality pooling, so why not wait until the time in your life when there is.

“So rather than have people put their entire retirement savings at the mercy of the gilt yield curve on a single day, it seems sensible to look at what other forms of gradual decumulation there are, whether they be some form of graduated annuitisation, variable annuity or phased drawdown products. Luckily we still have a lot of time to look at this before it becomes a significant issue for us, but we will, over the coming year, be doing work on looking at alternatives to the decumulation options currently available.”