As the pension industry enjoys a period of evolution and development, consumers are becoming increasingly engaged with the subject of planning for retirement.
For Tulsi Naidu, executive director of UK and offshore for Prudential, the changes represent a time of great opportunities, for consumers, advisers and, therefore providers too. For her, it is not simply the proposed changes that were announced in the Budget that are of interest, but a general sea-change in the way individuals are viewing financing their retirement.
She says: “What we have seen over the past few months are some very significant changes in the legislative context, but we have also noticed some interesting trends in what our customers have been doing that precede those announcements. As a provider with one of the most significant pensions books in the country and a leading retirement provider we are well-placed to observe the way in which customers are increasingly deferring taking their pension into retirement income. That is due, in the first instance, to the low inflation, low interest rate environment that has existed for a number of years, which has caused people to consider a wider range of options when converting their pension pot into an income.
“Second, customers are coming to the realisation that retirement isnot a one-off event and actually need to think of retirement as a gradual process, with a varying need for income over the time they are in retirement. As a result we had already started to see a rise in alternative solutions and asset-backed annuities, which can give the potential for a rising income but with a guaranteed underpin of income. Many people are prepared to some level of risk to enhance the amount of income they could take in their post-retirement financial planning.
“Since the Budget, we have also seen significant take up of our drawdown proposition, which includes our smoothed PruFund offering, a range of funds rated by risk appetite, and fundamentally appeal to customers looking for cautious, smoothed returns. That is something we do very well and we have noticed an immediate uplift post the budget in sales of that product.”
Although Prudential offers customers a wide range of products, including those suitable for customers seeking to take on more risk because of an increased appreciation of the likely longevity of the investment horizon, Ms Naidu acknowledges that the average 55 year old consumer is cautious in their investment choices at that stage in life. She believes those low volatility offerings are a particular strength for Prudential, but welcomes the way in which the industry is broadening out to include other options.
“What we are ultimately about is providing solutions that give customers choice and flexibility,” she says. “We are known for our market-leading smoothed propositions and our expertise in helping customers access risk-managed savings through products that have a lower volatility characteristic. What the changes announced in the Budget do is accelerate an underlying trend that was gathering momentum already. They create the right context for customers to make choices and we are very supportive of that.
“Of course, this has all been facilitated by the increase in the GADlimit from 120 per cent to 150 per cent and, prior to that, from 100 per cent to 120 per cent. We reacted very promptly to those changes and have been well-positioned to help clients benefit from those changes.”
Looking ahead, Ms Naidu believes that Prudential will continue to build on its award-winning and market-leading propositions, reacting to developments in the market but also anticipating in advance what advisers and their clients will be looking for from retirement solutions in the future. She also welcomes the increase in the ISA limit, which she believes helps nurture the savings habit and is helpful in retirement savings. She expects the unique PruFundproposition to be made available through an ISA within the next year.
She says: “We will certainly look to build on our strengths and our strengths typically lie in multi-asset investing, such as through PruFund, which is our modernised with-profit offering. I think we expect, over time, to be able to take that as a starting point but extend variations of it that are appropriate, driven by what intermediaries and clients are looking for. Prudential has expertise globally in retirement products and we can clearly leverage that to the benefit of advisers and customers in the UK.
“What I expect to see is for us to start with our existing strong proposition and develop it in line with the increase in choice and flexibility driven by changes to the wider industry. However, it will always be rooted in the needs of customers who will be seeking risk-managed savings.”
Overall, Ms Naidu anticipates a broadening out in terms of customers’ needs, with the increased choice automatically creating more options in how they approach financing retirement. Indeed, while the template for a ‘standard’ retirement has been all but disappearedthrough the series of changes that have unfolded over the past few years, she highlights too that there will be some customers still looking to follow the traditional route.
“We should not underestimate that there still are and always will be customers who are seeking to de-risk completely and they will be looking for a conventional annuity,” she confirms. “The annuity space will play out with increasing complexity. There will be others who want to take out a proportion of their income, with an underpin of the guarantee which an annuity can provide, but with the remainder of their fund they will go into drawdown or phased drawdown and simply draw on the fund over time. Then there will be another group who look to an annuity as a later-life solution and will be prepared to take investment risk for a longer period of time. What will happen is rather than people feeling compelled to go to one product, you will get much more choice and people with different risk appetites and financial circumstances going for different options. As a provider, for us the challenge and the opportunity will be to make available those choices.”
In terms of advisers, Ms Naidu recognises the challenges and opportunities that face them too. Viewed as a whole, though, she thinks the changes will be overwhelmingly positive for the adviser market, boosting business and establishing new and profitable relationships with clients.
“More choice means more people needing advice,” she says. “Whether it is clients looking for relatively simple or more complex solutions, in absolute terms the demand for the service advisers offers must grow as a result of the changes. We believe this is a real opportunity and that the increasing emphasis on knowledge and empowerment of consumers must be a good thing for the advisory market.
“For our part, we are very committed to the adviser market. We are known for being very innovative in the solutions we bring and we have invested very heavily over the past few years in the support that we offer advisers. For example, immediately after the Budget we did a number of roadshows as well as webinars and online interactions to help advisers work out what the implications were for them and their clients. We also have a business consulting team that supports advisers and, as much as possible, we would, as a provider, like to work with and support advisers as they navigate their business models through the opportunities that some of these legislative changes present.
We are thinking hard as a business about how we develop our support to advisers.
“In general, changes that are good for consumers, increase flexibility and increase engagement with pensions and savings are good for the industry and good for us as a provider. We welcome the Budget proposals, we welcome the choices they give people when thinking about retirement. Our business is well positioned to thrive and we firmly believe that the more open environment presents a good opportunity for advisers. What hasn’t changed is our commitment to helping and supporting advisers in a range of different ways, including but not limited to offering a distinctive product suite that is right for the retirement market.”
