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Steve Patterson, Managing Director of income drawdown specialist Intelligent Pensions, has expressed concern that variable annuities, the subject of a spate of recent press reports, have the potential for creating a mismatch in the advice given to clients which could result in some clients being unwittingly placed at a significant disadvantage.

‘Variable annuities’ is an American term for income drawdown products with guarantees. In the UK these have become known as ‘third way’ pensions. The problem according to Mr Patterson is that, in many cases, the extra cost of providing the income guarantee is not worth paying for unless the client actually needs it.

He said, “Typically, the cost of this ‘insurance’ is around 0.75% to 1% of the fund per annum, which doesn’t sound a lot, but over a 15 year period the remaining drawdown fund could be as much as 15 to 20% lower, with a direct knock on effect to the lifetime annuity thereafter.

“I suspect that prospective investors may not fully appreciate the long term impact when the benefits are being explained to them, and hope that the FSA keeps a close track on how these plans are being recommended!”

Whilst acknowledging that there is an argument that the inclusion of the underlying guarantee enables a higher degree of equity exposure than might otherwise be the case, Mr Patterson points out that a well run drawdown portfolio will include risk management characteristics that will allow an appropriate degree of equity exposure already.

He said, “‘Third way’ products definitely have their place – and we will recommend them where appropriate – but the product providers in this space will be the first to agree they are certainly not a cure-all for the ‘at retirement’ market.”

Intelligent Pensions recently moved into Grade A office space in the hub of Glasgow’s International Financial Services District (IFSD), marking the latest stage of an expansion strategy that could see the firm list on the Alternative Investment Market within five years.

Intelligent Pensions www.intelligentpensions.com announced a record rise in gross revenue – up 55 per cent, from £1.4 million to £2.1 million – in its latest accounts and expects pre-tax profits to rise above the £500,000 mark in the current period. More than 90 per cent of its business is obtained by client referrals from other IFAs. Despite recent market turbulence, it now has in excess of £300 million of funds under management.

ENDS

For further information please contact Steve Patterson at Intelligent Pensions tel 0141 249 6892, mobile 07876 140586 or ipasp@mobileemail.vodafone.net

Issued on behalf of Intelligent Pensions by Liquorice Media tel 0141 564 8058

Date 19th June 08