CompaniesAug 15 2014

How advisers must raise game ahead of £9bn retirement influx

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Advisers will need to raise their expertise across a range of different product areas and investment strategies ahead of a flood of as much as £9bn into the at-retirement arena in 2015, and a potential trebling of the market by 2023, according to JP Morgan’s head of UK funds.

Jasper Berens told FTAdviser the at-retirement market would surge on the back of defined contribution asset growth and auto-enrolment, with more money going into a wider range of products exposed to a more diverse set of underlying investments.

He said this will require advisers to develop planning strategies for clients throughout their ‘retirement journey’, and to boost knowledge in areas such as capital markets or other previously esoteric investment strategies.

Mr Berens said his prediction of future inflows takes into account the entirety of assets in the market during any given year that are taken out of savings and put towards some form of investment, be that income drawdown, cash savings, annuities, or buy-to-let property.

He stated that the Budget reforms may create as much as £9bn market flow next year, equivalent to an approximately 40 per cent increase in UK open-ended net flows.

“Given that more than 91 per cent of current drawdown assets are currently adviser intermediated, IFAs are right at the heart of this.

“Early consumer surveys suggest that roughly 32 per cent of defined contribution assets will be money-in-motion, either entering drawdown wrappers, Isas or going into annuities which are not overseen by the pension scheme or trustees.”

“2015 may be an outsized year as the at-retirement changes go into effect, but a likely lasting impact may be that investors who would have bought annuities will instead be well served by multi-asset income funds that are easy to understand, accessible and lack complex and expensive guarantees.”

Results from a number of providers suggest current annuity sales are down by around 50 per cent as clients defer decisions ahead of the reforms coming into effect next year. Once the new freedoms are in place some suggest annuity sales could be 90 per cent down on pre-reform levels.

Mr Berens said that IFAs are going to have to advise clients much more comprehensively on how they take their capital and income from maturing pension pots and how this works in the context of using other accrued savings pots or property to support changing lifestyles during retirement.

“Advisers will have to raise their expertise to meet a newly opened market, requiring them to gather significant context across capital markets, investment strategies, and financial planning; not to mention no single client will have the same set of circumstances as the next individual.

“To be equipped, financial advisers have to think about client needs at all stages of the retirement journey. It’s important that advisers have a well grounded framework for substantial, informational conversations in their toolkit.”