The insurer is launching the annuity after becoming concerned about how European legislation could depress annuity rates further.
The move follows MGM’s launch of an asset-backed annuity in February, which it will follow with an impaired offering later this month.
L&G head of product development for annuities Tim Gosden would not confirm a timescale for it to go live, but said there was a desire from the public for a guaranteed income through simple investment-linked annuities.
“With Solvency II looming, annuity rates will drop,” he said. “Consumers want to maximise their retirement income, especially given that the average retirement pot is just £30,000, equating to £1,800 a year for the average 60-year-old.”
Just 5% of annuities are currently investment-linked, with products offered by the likes of Prudential and MGM Advantage.
With-profits annuities, a similar product linked to the stock market, have suffered reputationally following the recent stock market crash, but Gosden maintains they can still be a good choice for some consumers.
“People knock with-profits, but as an annuity product they can still work well. The problem is advisers often have difficulty in explaining them,” he said.
“We’re looking to develop a product that will be easy to understand for advisers and their customers.”
Bob Bullivant, chief executive at Annuity Direct, agreed Solvency II was causing concern across the annuity industry – referring to it as “bureaucracy gone mad” – but appeared less convinced that L&G’s offering would prove popular for the average £30,000 pot-holder.
“I’m not sure someone with a pot that size would be prepared to take a risk on their income; most people would want some sort of guarantee,” he said.
“The public are risk averse and generally don’t understand investment-linked products.
“If it’s genuinely like the MGM Advantage product, that would be good. What MGM got right was to keep the charges down, using Vanguard and having quarterly management charges.”
Stuart Bayliss, director at Directly Financial, said more entrants into the market were likely ahead of Solvency II – along with an increase in temporary annuity products – given the capital requirements under the new regulations are lower.
Last week also saw a government consultation launched into scrapping compulsory annuitisation, as well as proposals to allow capped drawdown, equivalent to unsecured pension extended beyond age 75, for the whole of an individual’s retirement. Capped drawdown would be applicable from age 55.
The government will also create additional flexibility for individuals who wish to draw down more than the capped annual limit. Drawdown of unlimited amounts will be allowed from the pension pot, provided people can demonstrate they have secured a sufficient minimum income to prevent them from exhausting their savings prematurely and falling back on the state.
