Third Way & Variable Annuities
A relatively new concept in the retirement market and one that should be considered for those able to accept an element of risk.
What are Third Way & Variable Annuities?
Over recent years, alternative products have come to the market in the form of Third Way and Variable Annuities.
Some of these contracts are often referred to as Guaranteed Drawdown. Guaranteed Drawdown provides guarantees in one or a combination of the following two ways:
It also includes the ability to defer the purchase of a Lifetime Annuity.
Each different plan contains a different risk and different guarantees, which you would need to be prepared to accept prior to effecting an income. This can work very well for those that like the flexibility of Drawdown but do not want their income or fund to be directly affected by changes in the stockmarket.
This new type of product aims to provide an element of secured income, combined with some of the flexibility of a Drawdown plan. The products themselves vary widely in the elements on offer to clients and new products are constantly coming into the market.
Guaranteed Drawdown – Income Guarantee
Some products guarantee to provide a certain level of income; generally at a set percentage of the fund for the term of the contract.
Other providers will offer a specified monetary amount of income at outset that will be paid for the agreed term. At the end of this term, a fund value will be available to either purchase another Third Way Product or commence Drawdown or a Lifetime Annuity. In some instances, though not all, this fund value may also be guaranteed at maturity.
Guaranteed Drawdown – Fund Guarantee
Some products guarantee to provide a certain level of fund at the end of the term agreed at outset as indicated above, however all policies work differently.
There are some products on the market that will agree to ‘lock in’ growth on the pension fund on a policy anniversary whether this be annually or on a predetermined basis. In some instances this growth will be capped. Once the agreed growth is ‘locked in’ this will be part of the guaranteed fund value at maturity. Any guarantees will only be available on maturity or death within the term.
Some of the contracts are complex, but others are very simple. For instance, one such product is set up on a simple basis of offering a guaranteed income for a defined period with a guaranteed maturity value.
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