Downsizing is certainly more straightforward and less risky for the financial institutions than taking assets as collateral. One other comment I can think of is to mention a similar 401k plan that was offered at my previous job. This plan followed a target date glide path in terms of investments but there was also an option to opt into a secure income asset. This essentially phased in contributions toward an annuity-like product but was seamlessly incorporated within the 401k asset mix rather than a standalone product. Just as the asset mix in a target date fund moves from roughly 80/20 stocks/bonds to 20/80, this added a third component which started at 0% but grew as the person aged until it was large enough to cover the desired level of future fixed payments.
This is a promising idea but I have one major concern. This type of product would rely on someone who has already saved well for the 'buy in'. These customers would essentially be choosing to convert a portion of their retirement savings into a pension that would guarantee a fixed monthly payment. You stated that half the workforce does not have a 401k. Where do you envision a majority of the funds needed for the buy in coming from? This looks like it will help diversify those who have previously saved well but will have too steep of an entry for those who are unprepared for retirement. Do you envision alternative collateral (such as a house) being used for the 'buy in'?