Standard Life and Fidelity International have launched a retirement product that pays a guaranteed income into a drawdown account, to help people manage changing income needs over the course of their retirement. The launch comes ahead of a pension schemes bill that is expected to require trustees to offer a default decumulation solution to scheme members.

The Standard Life Guaranteed Lifetime Income plan is held on the Fidelity Adviser Solutions platform within a flexi-access drawdown account. It offers guaranteed income that is directly paid into the drawdown account – thus avoiding an immediate tax charge – from where monthly income can be managed flexibly. Any guaranteed income that is not withdrawn can be held in the drawdown cash account or reinvested on the platform.

The guaranteed income product is individually underwritten, but Standard Life is avoiding the term annuity, which continues to have negative connotations for some consumers after rates plummeted during the post-GFC era, even as average annuity rates have increased by about 8% over the course of 2024.

With many savers reluctant to hand over their pension savings to an insurer for good, the product also offers an option to protect the purchase price of the product, minus any income already paid out.

Claire Altman, managing director of individual retirement at Standard Life, which is part of Phoenix Group, said people need a range of income solutions as their requirements change depending on which life stage they are in.

“Having certainty of income can be a valuable part of this mix, providing a guaranteed income for life; however, people also want to maintain a degree of flexibility,” she said.

Fidelity International’s head of distribution for global platform solutions, Jeff Harris, said the strategic partnership has allowed the two firms to combine their experience to address the needs of those approaching and in retirement.

“With people living longer - and spending longer in retirement - than ever before, the need for flexible solutions which allow advisers to help clients live, save, and spend is fundamental,” he said.

Those who have bought the plan can add to their guaranteed income by buying extra tranches, potentially benefitting from higher rates of guaranteed income as they age.

The product, available from today on an intermediated basis to those older than 55 and younger than 86, has been added to three cashflow modelling tools – CashCalc, Defaqto and Dynamic Planner – for advisers to show their clients. The minimum purchase price is £10,000 and the maximum £500,000 for each plan. The total amount of Guaranteed Lifetime Income an individual can invest in multiple plans within flexi-access drawdown is £1m.

How people who are mainly reliant on defined contribution can manage their longevity and investment risk has been a key question since the introduction of freedom and choice reforms in 2015, with the industry relatively slow to innovate.

New figures from Aon show a slightly improved picture thanks to higher returns and post-retirement return assumptions. The tracker went up by around 20% over 2024, after a fall in 2023, though Aon expects it to fall again because of inflation. The tracker measures the expected retirement outcomes of four sample DC pension savers against the Pensions and Lifetime Savings Association/Loughborough University Retirement Living Standards.

As a larger number of people with DC pensions and little or no defined benefit approach retirement, the need for solutions that address the risks of running out of money and of underspending is becoming more pressing.

The government is proposing to write into law that trust-based schemes must offer a default decumulation solution to their members. This could drive many scheme members towards DC master trusts, which are often preferred as follow-on providers by trustees. Retail solutions by insurers may in future need to offer something more to be attractive to consumers.
   

Will the new default requirement for DC trusts put pressure on retail providers to improve their offerings?