Question: In the Pre-Budget Report the government decided not to change tax rules to allow further development of third way products. What effect do you think this decision will have on these products as well as the decumulation market as a whole?

Each month, we ask our industry to answer one big question!

Nick Bladen is head of pensions marketing at Skandia

Naturally clients and advisers are looking at what alternatives exist. The changes some had hoped for have not been forthcoming, so providers and advisers need to look at how creative they can be in constructing solutions for clients within the confines of the current rules. In this situation, income drawdown remains an interesting and highly attractive option for many. Its flexible nature means that an investment strategy can be individually tailored for each client - no matter how cautious or aggressive their attitude to risk. The evolution of platforms has made managing this process as part of a wider financial planning strategy even smoother. Making strategic income and decumulation decisions across platform investments and from the appropriate tax wrapper is critical. For many, the one-way street offered by annuities cannot compete with this level of choice and control.

Peter Carter is head of technical services - retirement and savings at Met Life

The government has been supportive of moves to offer innovation in the UK retirement market and the Pre-Budget Report does not change our views.

Providers need to work closely with the government but should not be looking for changes in tax rules to do their job for them.

We believe there is more innovation to come and intend to play our part in the further development of the UK pensions market. The industry has to respond by offering greater flexibility and control to UK savers so they can take responsibility for their own retirement.

The US lesson we should apply is that the development of third way style products in the States was not driven by legislation but demand from advisers and clients. We believe something similar will happen in the UK.

David Dunn is director of the Fidelity Retirement Institute

The decision not to change the tax rules leaves the new US style variable annuities on the margin of the traditional pensions market.

Even here they need to be shoe horned to fit the regulations and the simplicity and elegance of the design is sometimes compromised as a result. They can still be used without compromise to secure an income for life from non-pension savings and the evidence suggests that more and more people are using non pension vehicles for part of their retirement savings. The impact of the government's decision on the market place as a whole is a missed opportunity to encourage people to save more for their retirement.

Kim Lerche-Thomsen is founder and chief executive of Living Time

The government's statement contained two assumptions that we would challenge. The first is that changing the tax rules must 'add complexity'. Changes do not have to add complexity. The second assumption is that any change would 'potentially benefit only a small number of consumers with large pension savings' when in fact wealthy people are already well served by the income drawdown market. The two sets of rules - for secured and unsecured pensions - exist in the UK in part for historical rather than practical reasons. The result is that retirees are often funnelled into one of these extremes when increasing numbers could benefit from a middle-ground or mainstream product that has low costs, income guarantees and flexibility. 'Middle market' products will continue to be developed to meet the needs of people who are living longer, who are worried about issues such as failing health, and who feel lifetime annuities are too restrictive or offer poor value at present.

Peter Magliocco is associate regional director of The Annuity Bureau.

A good starting point would be to try and define what "third way" encompasses.

The term would seem to embrace all those products which attempt to allow an element of flexibility usually associated with income drawdown (USP) together with the security of a conventional annuity.

The cost for providing a known income at the start of the arrangement, which is facilitated through the use of derivatives, is reflected in an increased (additional) management charge. Charges can vary from 0.75% to 1.5% per year which is in addition to other fund charges. The objection to these types of arrangements which is often cited is that the cost is prohibitive. However, if we turn our focus towards the US the popularity of some form of guarantee with an element of flexibility (i.e. a variable annuity) accounts for around 68% of the retirement market. So the cost objection can be overcome by prioritising what is most important for the client.

As can be demonstrated by any changes in the retirement arena, for example Canada Life Annuity Growth Account the market requires an element of time before any arrangement becomes accepted. A slowing in this Government's appetite to actively promote the development of decumulation products affords the adviser community time to reflect on the plethora of products that are now available. There will inevitably be further innovation with companies willing to push at the perceived boundaries of the conventional retirement market which is healthy and to be encouraged.

Mark Mason is an IFA at Buckles Investment Services

I can understand the significant gaps that third way products are designed to fill. However, tax issues are restricting the development of this market: The age 75 rule means the third way arrangement must end by 75 leaving the annuitants with a conventional annuity or an alternatively secured pension as their only options. Secondly, the decision to deprive the funds of advanced corporation tax has left all pension funds significantly poorer than they would have otherwise been. Finally, rules around funds acquired by an annuitant through state earnings related pension scheme (SERPS) and latterly state second pension (S2P) mean that they are denied the opportunity to consider a third way option. The Pre-Budget Report's failure to address these issues means that the potential market for these products is restricted. In turn, this will inevitably have a knock on and also negative effect on competition and developments in the pension market.

Simon O'Connor is head of products and marketing at Lincoln Financial Group

The PBR presented an opportunity for the Government to provide more support for further innovation in this marketplace and it is disappointing that it chose not to do so.

That said, the current regulatory environment has not prevented the introduction of third way products and the decision of the Chancellor not to remove tax barriers to these products means that the onus for encouraging and educating the consumer remains firmly with advisers and providers.

Third way products - that essentially bridge the gap between traditional annuities and the risks associated with income drawdown - are still a new concept for many. The industry needs to work together to ensure that both IFAs and consumers feel educated and confident in selecting such solutions to take them through what could be as much as 25-plus years of retirement.

Andrew Tully is marketing technical manager at Standard Life

It is disappointing that the Government has chosen to restrict the innovation of new annuity products. These products give people a guaranteed income for life - the main benefit of an annuity - while also offering the upside from any investment return.

While it is possible to use these products in the UK, many in the industry were hoping the Government would amend legislation to allow greater flexibility. The Government decision is based on a misconception that these products only appeal to a narrow range of high net worth people. This is incorrect - third way products have the potential to appeal to a huge range of customers for whom existing retirement options are insufficiently attractive. Standard Life will ask the Government to reconsider its stance on this issue.

Rachel Vahey is head of pensions development at AEGON

The UK has a problem. Collectively, we're not saving enough money for our retirement. The Government's pensions reform proposals will go some way to addressing this, but we have to do more. We have to inspire people to save.

One way of doing this is to give people more choice about how to harvest their pension savings, to fit in with income needs in retirement and their appetite to risk. The new generations considering saving now want more control and more freedom. They want security but are also willing to take on a bit of risk to get the best result.

The Treasury's decision not to change the tax rules is disappointing. A recent IFA Insights survey by AEGON showed that three quarters of IFAs believed developing product innovation, such as third way annuities, is important to encourage more retirement savings. Changing the rules would have allowed the smooth emergence of these products. However, the pensions industry is rising to challenge of providing more innovative ways for people to harvest their pension savings. This market is set for real change in the future.

Janette Weir is director at IQ Research

During my days as an economist at DWP it was always clear to me what the government's line on pensions was all about - you get (higher rate) tax relief on pension contributions and in return for that the deal is that you will not be able to fritter the money away and fall back on means tested state provision. In this context, it is understandable why the government is nervous of changing the rules to help the development of third way products.

There is no doubt that there is a demand for such products from both IFAs and consumers but until now, third way products have by and large been launched by US providers who are seen as niche players in the UK. This coupled with an economic climate of high interest rates and a sustained period of good stock market returns has also hindered acceptance of the need for guarantees by the IFA community.

If the government had taken the plunge, this would undoubtedly have given the market a boost. However, an unsettled stock market and a launch by a well known household name will do much more to bring the product to the mainstream.