Advisers and providers have had to turn 180 degrees and completely reassess what their priorities are when it comes to financial advice and products, and they face a huge range of options.
As everyone knows, annuities are no longer compulsory, and instead of just ticking a box to say ‘yes, please move my pension fund to another one of your pension products that guarantees me an income’, the pensioner now has to make a choice.
Many have heralded this as an exciting new era for today’s pensioners, but with extra freedom comes more responsibility. Understandably, pensioners have been getting frustrated with the poor returns from annuities over the past few years, exacerbated in part by the financial crisis.
So the chancellor, George Osborne, has listened and said: “You decide”. The challenge is that no one knows how people will behave when they get access to this unlimited freedom. Will we spend it or choose wisely?
Attempts are being made to persuade people to be informed when making their decision, but ultimately it is the responsibility of the individual to get himself educated. With the affluent, well-informed pensioner, this is probably not too much of a problem. But what about the huge groundswell of the population who might not have thought too much about their finances until now?
Perhaps, by the time they get to retirement age, their minds are focused on what they will have to live on when they stop working. But even then, how many will be lured by unprincipled schemes that promise to double a client’s money by investing it in property in the Caribbean?
At least the FCA has told providers that they should shoulder some of the responsibility of pointing pensioners in the right direction.
But what of these providers? Gradually, they are starting to produce their new ‘freedom-friendly’ products that offer different variations of taking income at various stages. But will they all look the same in five years?
What about advisers? The advice landscape has just become more complicated – what happens with defined benefit schemes, for example, and how does one break down the different retirement needs for the last years of one’s life?
Retirement has changed as we have begun to live longer, and so paying for it has changed too. For advisers this must be an opportunity worth seizing.
Melanie Tringham is features editor at Financial Adviser