The FCA guidance paper FG14/3 (something that advisers should quickly digest if not read already) “…includes circumstances where customers are in the cancellation period for a retirement income product, are on the retirement journey (i.e. have received a wake-up pack from their pension provider), or are coming up to retirement (i.e. more than six months before retirement)”, and hence advisers can also use this framework to guide their own activities.
Once identified advisers will need to design the appropriate communication strategy for engaging with each segment of clients and updating them about the Budget changes. There will be an urgency to this communication exercise for those clients who are closing in on retirement and who may have been previously appraised of their options by the adviser before the Budget.
It will also be important for advisers to keep abreast of the consultation period during the Summer and to see what the final format for the proposed changes will be for April 2015. At this stage communications for clients still in the approach to retirement will need to be finessed and take into account the new outlook.
One of the challenges will be to decide what action to take - or not to take - with clients in this interim period. This will always be dependent on client circumstances and requirements but it may be the case that some form of delaying tactic might be appropriate.
This could be potentially be done by staying put in personal pension/Sipp (i.e. not crystallising pension assets), by taking cash and entering capped drawdown or by using one of the new fixed term annuities. All of this, of course, would be subject to suitability for the client.
The bottom line for advisers, and as underlined within FG14/3, will be that changes to processes will be required as a result of the Budget and they must ensure that clients are not disadvantaged by not being made aware of the new pension flexibility available to them.
Market developments since the Budget
At a corporate level we have seen a range of holding statements and press releases issued by retirement income product providers in the immediate aftermath of the Budget.
These were generally positive statements about the outlook for the retirement income market and the nature of the changes proposed, but there was an acknowledgement from most that product ranges would come under review in light of the changes and new product developments would now come into consideration.
In the immediate aftermath, and at the belated behest of the FCA, most providers announced the extension of annuity cancellation periods for clients who purchased in close proximity to the Budget in mid-March.
We have subsequently seen some retirement income providers reporting a severe downturn in annuity sales figures for both Q1 and especially in the weeks since the Budget, and most providers will have certainly needed to revise sales targets for the year as a direct result.