Pension reforms open new market

This article is part of
Spring Investment Monitor - March 2015

The pension freedoms announced in last year’s Budget came as a surprise to many and opened a whole new market for investment – the at-retirement investors.

Research from F&C Investments reveals that 51 per cent of the UK financial advisers surveyed think more than 60 per cent of their clients who would originally have purchased an annuity, will now defer that decision. Also, 64 per cent of those surveyed say they will consider using a multi-asset income fund to produce income in retirement for their clients.

It is therefore not surprising that since March 2014 there has been a proliferation of multi-asset income products from both fund managers and life companies looking to target this new sector.

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Jeremy Roberts, head of retail sales at BlackRock, notes: “Finding and receiving income from traditional sources is becoming more difficult. Traditional bonds are being challenged by the perpetual search for yield. We’re seeing historic lows for interest rates on cash and, while equities can produce an income, there is more volatility in a single-asset class.”

One of the first out of the blocks was Threadneedle with its launch of the Global Multi Asset Income fund in July 2014, while BlackRock released a UK version of its Global Multi-Asset Income fund in January 2015 and Newton launched its Multi-Asset Income fund in February.

Earlier this month Architas joined the fray with its Diversified Global Income fund. Cedric Bucher, head of UK funds at the firm, explains: “With the pension reforms from April introducing more flexibility for investors at retirement, coupled with low interest rates, we believe many people will choose income-generating investments over traditional annuities.”

As well as new entrants, there are existing multi-asset income offerings that are being given a boost with a new market to aim at, including Old Mutual Global Investor’s Generation fund range, and ‘old timers’ from the multi-asset income space such as the JPM Multi-Asset Income fund launched in 2009.

It’s not just open-ended funds that are looking to take advantage of the new trend. BlackRock has taken on the management of the British Assets Trust and is renaming it BlackRock Income Strategies Trust, while wealth managers, such as Psigma Investment Management, have launched multi-asset income options for their managed portfolio services.

Ben Willis, investment manager and head of research at Whitechurch Securities, says: “There will be plenty of groups rebadging their multi-asset income funds into pension solution funds. A lot of these multi-manager ranges were launched a few years ago in anticipation of [the] RDR, providing a low entry level, one-stop solution for advisory clients who had limited savings. But most advisers went down the low-cost, multi-manager passive route instead.

“The focus on income is going to intensify with the pension reforms. As long as these funds have a decent track record, do not be surprised to see them being marketed in the pension marketplace.”

Nyree Stewart is features editor at Investment Adviser