A new “three pot” retirement framework that seeks to balance savers want for flexibility and need for stability has been announced by Aviva, with indications that this could be launched next year.

Speaking at the PLSA Annual Conference 2022, Aviva head of investment strategy and propositions, Maiyuresh Rajah, said that the model was constructed around both the needs and wants of savers, as “people want flexibility” but they “also want their income to last”.

Rajah explained that the framework would split pots into a flexible income pot that would allow regular flexible income from an income drawdown arrangement, a secure income pot that would provide guaranteed secure income from a late life annuity that will start paying out at the age of 80.

The third pot will be an easy access pot which would allow occupational and unplanned spending which will be available throughout retirement.

Rajah also detailed the investment journey the framework would provide for members, stating: “It would start at the age the member enters the workforce, they start the journey and they’re in the accumulation phase.

“They are entered into a growth fund, and that can be any growth fund that will maximise returns. Then, when they get to age 55, or 10 years from retirement, they start derisking where we gradually move members assets from the growth fund to a drawdown fund and an annuity matching fund and a cash fund.

“When they’re at retirement, they have 10 per cent of the cash fund, 20 per cent in the annuity matching fund, and 70 per cent in the drawdown.

“When they reach retirement the 10 per cent in the cash fund becomes the easy access pot and the 20 per cent in the annuity matching fund is used to buy a later life annuity that will start paying out at the age of 80.

“The rest of the portfolio, the 70 per cent, stays in the drawdown fund and income will be distributed to the member so that over the next 15 years the drawdown fund will reduce in value gradually and then by age 80, the member will have used all of their assets.

“Then, at the age of 80, the annuity from the secure income pot will kick in and continue to pay out until the member dies.”

The framework comes in response to three retirement challenges identified by Aviva, namely retirees being overwhelmed by complex decisions, a lack of support and solutions, and the emergence of a “new type” of retiree.

Aviva Master Trust head of client engagement, Laura Stewart-Smith explained that pensions freedoms, whilst providing choice and flexibility, created a risk for individuals that they might make the wrong decision and have to live with the consequences of it.

Smith also detailed that the products available to retirees “haven’t changed” a great deal in recent years, and therefore maybe not meeting all of present-day retirees’ needs, and that the “new type of retiree” refers to DC savers who will face a new experience when they retire than their DB counterparts and will have no example to follow.

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