Financial planning developer eValue has launched a new pension freedom tool, designed to translate complex decision making into a simple picture of pension savers’ options for taking income from age 55.
The firm said that the Pensions Freedom Planner constitutes the first tool to use scenario-based retirement income modelling, as opposed to ‘straight line’ forecasts, which it deemed inaccurate.
Its calculation engine is underpinned by an ‘economic scenario generator’ stochastic asset model, which eValue argued is particularly important when modelling retirement income, since consumers often underestimate the potential for their income running out earlier than anticipated when choosing drawdown rather than guaranteed income.
Andrew Storey, technical sales director at eValue, previously warned that clients could be getting very different at-retirement product recommendations, depending on the forecasting model used, as such forecasts depend heavily on yields and returns assumptions, since both annuity rates and yields on other assets depend on market conditions.
The new planning tool enables those approaching retirement to understand and differentiate between each of the three key options of annuity, income drawdown and lump sum withdrawal. It compares income levels and explains the different tax consequences, highlighting longevity, market performance and other risks.
The tool has three major components. The first is an area for advisers in which questions are presented about the client’s age and savings, which generates a quick presentation of the various options.
Then comes a ‘knowledge centre’ that gives guidance for advisers to explain eight concepts surrounding pensions, which eValue’s research showed customers were struggling with the most.
The third of the tool’s components is an advanced planner, in which the adviser generates three to five “sensible solutions” for the customer.
It includes ‘what if’ scenarios such as retiring earlier or later; changing target income; more or less risk; working part time; blending annuity and drawdown; and if the consumer plans to save more.
eValue stressed that whilst the tool is not giving advice, it does give a projection based on the user’s personal situation, encouraging them to seek advice at appropriate points.
Samantha Seaton, eValue’s managing director, said that any tool modelling the new pension freedoms options could claim to be innovative, but the Pensions Freedoms Planner “genuinely breaks new ground in a number of ways”.
She suggested that without such help, retirees have very little hope of understanding what their retirement decisions are likely to mean for them in the future. “People need to see a meaningful and realistic outcome that is personalised for their circumstances.
“Without it, they will at best have to guess what the right option is for them. At worst they could make decisions based on biased or flawed forecasts, leading to an unexpected and horrendous situation of no income at some point in retirement.”
Ms Seaton commented: “If you are using these tools you should be able to charge your advice fee, but on top of that, have the customer really actually feel they’ve got very good value for money.
“This should help them to give really good discussion points about the options and what’s right for the customer, which is what the adviser wants to be able to do.”
Last week, the firm revealed it is also in the final stages of developing its own simplified ‘advice’ proposition, which big providers can white-label.
ruth.gillbe@ft.com
