Personal PensionJul 15 2015

Don’t expect pension product innovation until next year: AKG

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Don’t expect pension product innovation until next year: AKG

The majority of pension provider product innovation will not materialise until early 2016, as providers tackle the new challenges of a changing retirement income market, according to consultancy AKG.

The major hurdles for developing new solutions are connected with evolving consumer requirements, the difficulty of forecasting sales trends in a changing market and the risk of making mistakes and committing capital needed for system upgrades while the market adjusts.

Quantitative adviser research provided by Citigate Dewe Rogerson and qualitative research by Charles Butcher Research and Consultancy found that 47 per cent of advisers say financial strength is crucial in assessing providers and concerns remain about compliance risks when giving pension freedoms related advice.

Report author Matt Ward, head of communications at AKG, said that so far the pension freedoms have led to a relatively muted market, but developments should gather pace during the second half of 2015 as providers adjust to new adviser and consumer requirements.

“As such we anticipate that 2016 will be an extremely interesting year indeed for the broad range of market stakeholders seeking to capitalise on retirement income market opportunities.”

The report stresses that the majority of providers will need to offer drawdown in order to succeed, with competition coming from platforms and asset managers, which will offer solutions designed for drawdown.

However, not all providers are offering the full range of pension freedom access options. Most recently, Friends Life was forced to write to 1,300 customers who had requested partial pension withdrawals, telling them that the flexi-access drawdown option was no longer going to be offered due to the complexity of their pension back book.

AKG also found that establishing the right business mix will be a major challenge for providers, as advisers will demand wide product offerings, but it will be difficult to carry unprofitable products so cost efficiencies must be sought and reviews undertaken as to what are core and non-core activities.

The challenges for advisers include adjusting compliance and planning processes to fit the new-look market, along with offering things like cash flow modelling, income modelling and drawdown.

Mr Ward added that the acid test of business success will come in 2016 and 2017, when the market has matured progress of the various company strategies can be properly reviewed.

Earlier this month, a report by Moody’s Investors Service suggested that Standard Life and St James’s Place are “best placed” to cope with the new pension freedoms landscape, while Scottish Widows and Aegon may struggle.

peter.walker@ft.com