The provider exited the annuity market in 2017 but is now selling a fixed-term product to advisers.
M&G has re-entered the annuity market eight years after it stopped selling the retirement products, Citywire can reveal.
The provider is launching a fixed-term annuity term product (between five to 15 years) for advisers’ clients, with a minimum lump-sum investment of £10,000.
The launch follows a restructure to M&G’s business last year, which saw its Wealth business merged into Life division, under the management of Clive Bolton.
Anusha Mittal, M&G’s managing director of individual life and pensions, said the annuity launch is part of a strategy to diversify and grow M&G’s life business with a broader array of products.
‘It comes back to what our priorities for the business are,’ she told Citywire.
‘We already focused on broadening our proposition and growing a retirement income solution. The fixed-term annuity is the product that will offer the customer certainty, with guaranteed returns for a specified term. Our customer research shows customers will use this as a halfway house between annuitisation and drawdown.’
She added it was also driven by an increase in interest rates since Covid leading to better annuity rates, alongside tax changes including pensions becoming subject to inheritance tax, which was announced at the Budget.
Currently M&G’s annuity product offers rates between 4 to 4.5%, with reprices every few weeks.
Mittal added that following the fixed-term launch, M&G plans to launch whole-of-life annuity products.
Initially the fixed-term product will only be sold through advisers, with it available via M&G’s Retirement Account pension in the summer as a trustee investment. It will also be accessible via a list of other Sipps from different providers.
Mittal said that over time it could be opened to non-advised customers.
The product will be invested in M&G’s £129bn With-Profits fund, which includes PruFund. The scale of the fund, run by the group’s asset management arm, allows M&G to invest in private market.
If returns are better-than-expected, then annuity customers can receive modest top ups to their guaranteed income, she said, but there will be no income cuts if performance is poor.
M&G’s annuity history
In 2017 Prudential, as M&G was then called, became one of the many insurers to pull out of the annuity market after interest rats dropped to 0.25% following Brexit and pension freedoms saw drawdown become the main retirement option.
But in the past few years, some insurers have come back into the market, including Standard Life and Scottish Widows. The more providers competing in the market, the better rates customers should receive.
Last month data from the Association of British Insurers found annuity sales had reached a 10-year high, with 89,600 pension annuity contracts sold last year, a 24% increase on 2023.
M&G currently administers 700,000 old annuity products, which were sold through Prudential prior to the merger between the two providers in 2017. But these policies are closed to new business.
M&G’s move back to annuities represents a ‘big moment’ for the business, Mittal said, as the business pivots to focus on its life and pensions arm.
As part of its strategy shift, M&G announced last year it would be exiting the adviser platform market, with the M&G Wealth Platform to be sold or wound down if no buyer is found.
Last year M&G also re-entered the bulk-purchase annuity market, where defined benefit (DB) pension schemes are bought out by insurers.
Jack Gilbert (CityWire)