Radical changes to retirement income options announced at the Budget and that come into force today (27 March) will require a new approach to at-retirement financial planning and a split in regulatory treatment of retail investment advice, a senior director at Moody’s has said.
Speaking to FTAdviser, Philip Mowbray, head of retail advisory products at Moody’s Analytics, said a “clear distinction” needs to be made between investment advisers and advisers who work in the ‘decumulation’ phase of the at-retirement market.
In particular, Mr Mowbray hinted that a less “stringent” regulatory approach is needed for at retirement advisers.
Under the Retail Distribution Review, advice on all areas of pensions and investments is covered under the category of ‘retail investment advice’. Areas not covered under this definition include mortgages and protection.
Mr Mowbray said: “My slight concern is we are in a regulatory environment where advisers will have to adapt, as advisers still face a lot of constraints about giving advice.
“The problem from the income box has not changed, clearly the other issue is ‘at retirement’ advice. How will that work?
“Advice at retirement is far more complicated now [due to the Budget announcements] and there should be a clear distinction between investment advisers and decumulation advisers.”
Mr Mowbray added advisers in the ‘accumulation’ market who set default strategies will have to be “much more clearer about savings objectives”.
A number of advisers have raised concerns to FTAdviser about the discord between the government’s approach to retirement income options and the FCA attitude to regulation in this area.
One IFA, who wished to remain anonymous, said that from his own experience of FCA reviews of his files the regulator has an anti-drawdown bias and generally is more favourable to recommendations to clients to purchase annuities to guarantee income.
The IFA said that when grading an adviser firm’s retirement options files, the FCA would preclude the vast majority of an adviser’s clients from using flexible drawdown and that even cases for using capped drawdown have to be “extensively argued”.
He said: “We have learned [from the Budget] that the Treasury and department for work and pensions take a different view from the regulator.
“If the Treasury and the DWP say that there is no danger in flexible drawdown and the regulator disagrees, should these parties now clarify for us precisely how they expect financial advisers to deal with the anomaly?
“If they do not get together and arrange to tell us, how will we be able to guess? Will taking the Treasury’s and DWP’s line lead to financial advisers being struck off by the FCA?”
The IFA said the FCA needs to issue “clear and specific guidance before any misunderstandings lead to consumer detriment”.
As of today some pension relaxations are being introduced which will make drawdown more widely available. According to Treasury figures, 400,000 people will be affected from today.
As a consequence, there has been much speculation that the annuity market will suffer enormously, with L&G predicting the single annuity market will plummet by as much as £9bn.
However, Mr Mowbray believe annuities still have a place in the market for those with “medium” pots of between £40,000 to £250,000.
He said: “Annuities will still be an important part of retirement planning for a significant proportion of people.
“For those that have a £30/40,000 to £250,000 pot...they will still rely on this income to generate a retirement income.
“Lots of defined benefit and state pensions will still be used to prop up the retirement income and, for those, some kind of secured protection like an annuity will be fundamentally an important part of retirement planning.
“It has changed now for people with small pots and large pots but not for those with medium pots. There is now a real opportunity to innovate products.”
