Aegon said it has combined the key benefits of the two options with its new product called Secure Retirement Income.
Customers keep their pension invested but Aegon provides a guarantee on the minimum income they will receive. The guaranteed minimum income for life is 3.2% for those who start taking an income at 55 years old and 4.05% for those who start at 65 years old. Funds can be passed on to beneficiaries and additional death benefits can be selected.
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Duncan Jarrett, managing director of retail at Aegon UK, said: “For advisers and their clients, it may seem like a choice between the certainty of an annuity versus the flexibility of drawdown where returns can be unpredictable and people may have to adjust their income depending on their investment performance.
“There’s a clear gap in the market for services that provide the income certainty of an annuity with the flexibility of drawdown and we believe these services have come of age."
Aegon carried out a survey to test the appetite for its new product amongst over 55s. Income certainty was the most important retirement income feature (61%), followed by the ability to access capital when required (32%).
The majority (56%) said they had either experienced or expect to experience a lump sum expense into retirement, making flexibility a requirement.
Mr Jarrett said: “Annuity sales continue to fall as people seek greater flexibility and higher returns. And yet our research found that income certainty is the most important retirement income feature.
“There is a cost to providing a guarantee but we believe that there is also a clear benefit for customers which means that should they be unlucky enough to retire into a market downturn, they can sleep easy in the knowledge that their income is protected whilst retaining flexibility over their savings.”
Secure Retirement Income offers two Aegon SRI Managed Volatility funds – Cautious and Conservative – which have typical equity weightings of 40-45% and 30-35% respectively.
The service charges are, 0.53% for fund management, 0.30% for product, plus an explicit guarantee charge between 0.9% and 1.55% depending on whether death benefits are selected, meaning total charge between 1.73% and 2.38%.