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Post-Freedom Retirement Planning - May 2015

Post-Freedom Retirement Planning - May 2015

Introduction

While several investment houses have been quick off the mark in launching multi-asset income funds to cater to those in retirement – or rebranding existing vehicles as retirement solutions – the traditional mainstream pension providers have yet to unveil the expected raft of new products to exploit the new rules.

Annuities will continue to play a role in retirement planning, but providers have not yet defined how the product will evolve to ensure its continued relevance. Even in their current form annuities – especially enhanced – are ideal for the needs of most pensioners, who like the guarantee of regular income that can rise with inflation.

It may be that people purchase their annuity later in life, at 75, say. Having 10 years fewer to fund would prevent the income from having to be spread too thinly over a longer period, and could go some way to reminding the public what annuities can offer.

Meanwhile drawdown has become available to an entirely new demographic, and providers have already reported an uptick in demand, which should only grow as consumers become more familiar with their increased options.

Elsewhere, there has been speculation that other existing products could muscle their way into the retirement aarena. Investment trusts have made a play, underlining the ability to increase dividends as a particular strength when applied to retirement income.

Even before the freedoms, equity release was already becoming a more reputable option in retirement. There is a huge amount of cash tied up in the houses of the older generations and its use seems a logical way of addressing income needs, although the impact on inheritance could be a stumbling block.

Many expect a swathe of pensioners throwing themselves into the buy-to-let market, further endorsing the UK love affair with property. Although an investment as sizeable as a house purchase could lead retirees to put all their eggs in one BTL basket. And despite several success stories, the BTL market can resemble a bandwagon, and is not without considerable risks.

The new freedom’s arrival only marks the beginning of a spell of change. The coming years will see a world of new possibility as new products open up new opportunities, and advisers find new ways to combine existing solutions into a retirement plan.

It will take years for the dust to settle on the retirement market and for advisers and providers to feel comfortable within it. Here we look at how the retirement market is likely to evolve, and provide everything you need to make sense of it now.

In this special report