PensionsAug 20 2014

Budget changes boosting retiree risk appetite

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Statistics from risk profiling provider Distribution Technology have confirmed an expected trend towards investment solutions suitable for those looking at some form of income drawdown rather than taking an annuity, ahead of next April’s ‘at retirement’ reforms.

In this year’s Budget, chancellor George Osborne unveiled a range of changes to make pensions more flexible. The changes are expected to grow drawdown’s market share; previously annuities were regarded as the default retirement product.

Jim Henning, the firm’s principal consultant for investments and international, told FTAdviser that he was seeing “asset manager clients looking to engineer more outcome-orientated solutions for investors wanting to move to a decumulation strategy and have their capital managed within defined risk levels”.

He added that: “This will inevitably be delivered via multi-asset solutions of varying types and strategies and at the lower end of the risk scale, we would expect.”

According to the firm’s Dynamic Planner Intelligence Report for the second quarter this year, from the total of 171,407 individual cases that were advised within the period, the largest proportion was placed within the 60 to 64-year old age bracket.

Ben Goss, chief executive at Distribution Technology, said that advisers have been most occupied by customer enquiries around pension reforms, looking at client retirement risk assessments.

As a result of the higher risk tolerance in retirement saving, equities have been the favoured asset class, while an income focus is also prevalent and diversification through multi-asset funds has been popular, the report said.

Mr Henning added that this greater weighting to equities is diversified across both developed and Asian/emerging markets, at the expense of reduced exposure gilts and UK corporate bonds.

“It is important to bear in mind that at the heart of Dynamic Planner is an asset allocation model that is designed to provide efficient portfolio recommendations. Our intention is to provide long term strategic allocations rather than trying to regularly tilt them for short term tactical reasons.

“The latter is clearly the domain of the asset managers and the advisers when making portfolio recommendations. We think our software instead provides a consistent and robust framework to base decisions on long term financial planning needs.”