Following last year’s Budget, FTAdviser revealed a number of providers had placed their default fund strategy under review, including Nest, Now: Pensions, The People’s Pension, Scottish Widows, Aegon and Aviva.
Speaking to FTAdviser, Simon Chinnery, head of UK DC at JPMorgan Asset Management, questioned whether advisers have their clients in the most appropriate default plan for the post-Budget world.
He said: “Default design has evolved significantly over the years and following the 2014 Budget announcements, it’s clear that further evolution will be needed. The opportunity for advisers in the UK has expanded even further with new freedoms allowed to savers.”
Mr Chinnery stated that one challenge is that while there have been several new product launches since the end of March, no one has yet experienced exactly what investors will do in retirement after April.
He said: “Annuities aren’t dead, there is still a place for them, there is also a place for drawdown, and as we have been told, there is a need for more advice. Packaging all these up in the run up to retirement and into retirement is clearly an opportunity for advisers, but not a simple one.”
Despite all this, Mr Chinnery argued the main objective of the accumulation phase should still be the same; to ensure that as many members as possible reach the end of their careers with enough savings to generate at least minimum levels of replacement income.
“Without at least a minimum level of replacement, advisers are unable to do their job properly and, more importantly, an increasing number of people will not be able to afford to retire.
“We find mechanistic or overly simplistic investment strategies cannot meet this objective, they are ill-equipped to dynamically manage the changing landscape required of a default, for example, capital market and economic dynamics, regulatory changes, changes in longevity and in member behaviour.”
He concluded by suggesting that providers and advisers should look at the “resounding success” in the US with the growth target date fund popularity in a market where corporate advisers are extremely important.
Last year, FTAdviser revealed that a number of life companies who are facing the prospect of the new business tap for conventional single annuities being turned off in the wake of the Budget pensions overhaul were looking at launching so-called ‘third way’ unit-linked guarantee products.
Unit-linked guarantees are products written under drawdown rules and positioned in the middle ground between conventional annuities and income drawdown, which offer some guarantee over income or capital values while allowing a fund to remain invested.
Despite unit-linked products being immensely popular in other western markets such as Japan and in particular the US, where they have long out-sold conventional annuity alternatives, they represent a small part of the UK at-retirement market with currently only three active providers.
peter.walker@ft.com
