Blended solutions – or so-called ‘hybrid’ solutions - can provide flexible drawdown, guaranteed income, protected income, a combination of all of these from the outset, or a variation on these themes throughout retirement.
According to Steven Cameron, pensions director at Aegon, there is such a variety of different options now for people at retirement that any solution requires a lot of thought.
Defined benefits
This is particularly so when the pension involved is a defined benefit pension.
He comments: “One of the big trends in advice is people asking for a view on whether they should convert their defined benefit pension into a defined contribution one.
“There are clear pros and cons either way but we think there is scope to make greater use of partial transfers from DB pensions.
“This would allow them to move a portion of their benefits to DC while retaining a guaranteed and often inflation-proofed income.”
Mr Cameron suggests another blended option of this sort is for the individual to go into drawdown with some guaranteed income element, to benefit from potential investment growth underpinned by some certainty of regular income.
The key thing is flexibility. As a spokesman for LV= points out: “Choosing a blend of retirement products can give retirees the flexibility to be able to adapt their income to their changing needs throughout retirement.
“Taking out a fixed-term annuity can ensure customers are able to top up their income, while ensuring ‘guarantee’ at the end. However, some consumers may prefer to start with drawdown when they are likely to be in better health and more capable of making decisions.
“They then have the option in later life, perhaps when health has deteriorated, to take out an enhanced annuity which will give them peace of mind and a secure income.”
Therefore, because everyone’s income and capital needs are so different, it is important to point out that no one particular blended solution is the best for all.
However, some sort of blended solution can be an appropriate choice for many pensioners.
William Burrows, retirement director for Better Retirement, comments: “The best blended solutions are the simplest, and usually combine annuity and drawdown.”
Assessing the time horizon
The plan depends entirely on the individual client’s needs both at outset and during their retirement.
Fiona Tait, technical director for Intelligent Pensions, says these combinations can be put in place either from the outset or over time.
She explains: “Many retirees require income flexibility in the early years and more security as they get older.
“They may therefore start out invested in drawdown and phase annuity purchase over time, or they may start out with an annuity underpin to secure their minimum income requirements, and then use the remainder of their funds to invest for more growth.”
