Fund houses eye multi-asset opportunity in pension reforms

In practice, however, the ability for people to keep their pension invested and withdraw income, or to take it all out and spend it as they wish, is more difficult.

Research from True Potential recently showed the average saver required an annual income of roughly £23,457 a year in order to enjoy a comfortable retirement. To deliver this, the average saver would need a pension pot of £469,140.

Instead the average pension pot, after 45 years of saving, is roughly £120,213, meaning it could support a pensioner in a ‘comfortable’ retirement for just six years.

Asset manager opportunity

It is no surprise therefore that many investment firms are seeing the change in the pension rules as a new opportunity, particularly in the multi-asset income space, where these diversified portfolios already to some extent mirror what people have been invested in during their accrual phase.

Companies such as Threadneedle with its Global Multi Asset Income fund and Legal & General with its Retirement Income Multi-Asset fund have already positioned themselves to take advantage with new products, while others with multi-asset income funds are highlighting the benefits of their existing propositions.

Olivia Mayell, head client portfolio manager for the JPM Multi-Asset Income fund, points out that people have many more options than they had before with their retirement investments.

She adds: “The need for income has been there for a long time and there are ways to invest for that, but in the UK typically it has been quite narrow. You’ve had UK equity income funds and UK corporate bonds as the default answers for trying to produce a good level of yield off their asset base.

“Now in retirement it may be that the equity portfolio could be a little bit too spicy, and the bond portfolio may just have too low growth to help those assets keep track with inflation. So as an investor you’re stuck in the middle if those are the two things you naturally go to.”

Therefore Ms Mayell suggests there has been a shift in the industry in the past few years away from domestic assets and single asset classes towards portfolios where they don’t have to do it themselves but provide better diversification.

“Multi-asset do that because they give you a much broader opportunity set but they also deliver between the middle of the two problems, so not too much risk which you would get from equities alone, but enough risk and enough return to keep you ahead of inflation and growing assets enough and releasing enough income that is meaningful to the person that is investing.

“It is an investment solution and when people look at their retirement portfolio, they will be able to use these as part of their overall retirement scheme.”

Out with the old?

The question is whether these existing solutions are the right move for retirees or if they will require something much more bespoke.

Ben Willis, investment manager and head of research at Whitechurch Securities, agrees that the proposed pension changes provide pensioners with far greater flexibility and, of course, the main focus of any retiree is income.

But he warns that at the moment “I just see the recent multi-asset income launches as marketing promotions”.

He adds: “The ones that I have seen on offer are really no different to what is already available within the market place. However, there is still scope to see more of these types of products within the market and it would not surprise me if many life and pension providers either team-up with fund groups or start offering their own.

“After all, they have a bank of pension clients that they can market to already. In some cases they will be suitable for pensioners, however, in other cases, an annuity will still suffice. It all depends on the individual’s circumstances, attitude to risk and what they are hoping to achieve with their monies.”

But with the changes to the pension landscape, a more retirement orientated multi-asset fund in the form of target-dated funds could be another option for investors.

Martin Bamford, managing director at Informed Choice, points to a movement in the industry towards target date funds, which have been popular in the US for some time.

“These can be used for retirement planning. JP Morgan offers a range of Smart Retirement funds where investors select their year of birth; for example, someone born in 1979 would be aiming to retire around 2045 and they suggest an initial asset mix of 84.6 per cent stocks and 15.4 per cent bonds.

“This mix changes as you approach your target retirement date, with a greater emphasis on bonds as you get closer to retirement.”

Need for advice

No matter what option pensioners look towards for their future income, it is clear they will need clear advice and guidance.

Ms Mayell points out that as the changes are implemented the key focus for post-retirement investment offerings will be the delivery and frequency of income returned to investors, but that there is a second stage of development.

“As more work is done in the next few years, people will look at ways to smooth the income and how to work on having a drawdown of assets. So it is not just about maintaining the pot but about delivering that pot back to the individual as they may want to eat into the capital as they go through their retirement.

“The answers are not there yet, but there are a lot of people doinga lot of work there, so that’s probably the next stage.”

Meanwhile, it is not just open-ended funds that are looking to take a piece of the pensions pie, with investment trusts also highlighting their ability to ‘smooth’ returns, with many investment companies delivering both steady and increasing dividends to investors.

But as Ms Mayell points out, with any retirement investment option, they will need to come with thoughtfully worded disclaimers.

“There will be risks to the capital value, but with that comes capital benefits,” she says. “But more importantly with these vehicles, having access to something a little more about growth in the early stages of retirement, and then access to capital and income later on, is probably going to be the exciting thing for investors, perhaps in addition to an annuity and not instead of it.”

Nyree Stewart is features editor at Investment Adviser

nyree.stewart@ft.com