Ask the Experts: the future of unit-linked guarantees

Question: What important role do you see these products playing in the retirement income space in future? Calm before a storm?

Answer - Colin Bell, European variable annuity product director, Aegon

I think that these products will increasingly become an accepted part of the retirement income space.

For pension assets, we know that defined contribution (DC) plans will become the main pension vehicle for the private sector, with individuals shouldering a variety of risks that employers once carried.

I strongly suspect that (if they understood more about the risks and potential solutions) individuals would like to transfer some of this risk away and give themselves more certainty - but not at the expense of loss of flexibility, death benefits and the ability to cater for changing circumstances.

It is on these latter few points where annuities fall down. ULGs can transport guarantees within DC plans either directly as part of a consolidated drawdown vehicle or through guarantees attaching to a Trustee Investment Plan held by a SIPP.

But ULGs can also play a role in future retirement provision using non-pension assets through a range of tax-efficient onshore or offshore investment bonds with income guarantees.

Unit linked guarantees offer valuable protection insurance against potential events which if they happened, or happened at the wrong time, could seriously affect an individual's future retirement income and therefore quality of life in retirement, while maintaining flexibility and potential upside. I think that they're here to stay.

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