Guaranteed income must remain at the heart of financial planning, as people need to be able to buy food and pay the bills without worrying if next month’s ‘pay cheque’ will be delivered in full, Just Retirement’s customer insight director has argued.
Speaking to FTAdviser, Stephen Lowe conceded that there will be new options, such as the extension of guaranteed periods and wider use of value protection, but he argued that it is only once people have a secure base that they are free to spend, invest or give away the rest as they like.
Mr Lowe added that many retirees are choosing to let the dust settle before making major financial decisions, however it will be some time who the winners are from the pension reforms, set to be implemented in April.
“It will be some time, perhaps years or decades, before we really know who are the winners and losers from the reforms.
“By April we will be in the year of the sheep; let’s tend to our flock of retirees and make sure they are not left vulnerable to the wolves.”
To make sure consumers are protected from unintended consequences of the pension freedoms, Mr Lowe suggested there will need to be a major uplift in demand for impartial, professional advice.
“Financial planning in retirement has become a lot more complicated and there’s no way guaranteed guidance alone will be strong enough to promote the kind of informed shopping around needed at such a crucial point in life.”
He stated that while millions have been spent by providers in rethinking business models and product design in order to be ready when the time comes, the more effort put in trying to understand customer needs, the more obvious it has become that the fundamentals have not really changed.
“Pretty much every single piece of research in recent months has told the same story. When people give up work they have a basic need to replace lost wages with an income stream.
“Most retirees want to maintain their standard of living which means making the most of their money; they tend not to be financial thrill-seekers and usually have little capacity for loss.
Just Retirement’s house view is that the future is going to look a lot like the past.
“The changes in 2015 will turn out to be evolution rather than revolution. Yes, some people will embrace risk in the hope of further gains, but they were well catered for anyway through income drawdown.”
peter.walker@ft.com
