Retirement freedoms: Slow, but sure

No doubt at least one pensioner has blown a large part of her pension on an expensive toy and good luck to her, as long as she does not expect the rest of us to pay for her retirement.

Since their launch in mid-January the pensioner bonds have become the single biggest selling retail financial product in post-war history, pulling in an amazing £7.5bn. I have no doubt many marketing managers would have loved to be able to offer such a deal backed up with a cast iron guarantee.

Anecdotal evidence suggests that rather than blowing their pensions on luxuries, far more people who want to cash in their pension as a lump sum in full or part, are interested in buying a buy-to-let to supplement their income. Buying a property at the peak of a market may not be a wise thing to do but at least they are converting capital into income – not such a bad idea, and signs that most retirees are considering their options maturely and carefully.

Evidence from the providers and advisers suggests the new era has had a fairly slow start in terms of client enquiries. Aegon and Standard Life said they saw something of a jump in enquiries but many were from people asking about selling their annuity, something that does not arrive until next year.

Bristol-based Hargreaves Lansdown, which has launched a new online retirement planning tool, says it has seen a 400 per cent increase in drawdown illustration requests and some unexpected requests, such as people on income drawdown asking to reduce withdrawals to take a larger lump sum.

Overall, the picture is one of clients asking more questions and seeking information rather than one of panic and confusion, although it will take time for patterns to emerge.

What is encouraging is that some people, albeit a minority of the population, are at last showing some interest in their pensions.

With news last week from one survey that 89 per cent of the UK population rated retirement saving as a “low priority”, the upswing in interest in pensions could not have come a moment too soon.

For many of those seeking illustrations and asking about their pensions, the information they get may not be so good. Research by BlackRock for its BlackRock Investor Pulse Adviser survey recently found that 71 per cent of advisers said clients were planning to work longer and retire later because they did not believe their pension would last. Many foresaw shortfalls in income.

Not surprisingly, generating income has recently become a mantra recently for fund managers. A number of fund managers have launched income-focused products in recent months, and only last week Aberdeen launched a range of “low-cost” multi-asset fund products aimed at the retirement savings market.

This battle between fund managers and the traditional life and pensions providers over the retirement market could become one of the most interesting developments over the next 10 years. Some fund managers see a wall of money coming their way as pensioners look for more flexible savings products.

In terms of where investors should put their money, BlackRock says that its survey found that clients were holding too much cash and were too risk averse. I would go along with that but add the rider that it just underlined the fact that many clients do not want to take too much risk with their money, and understandably so.

This is something the investment providers have failed to take into account over the years, pushing too many risky products at the mass market. Many mis-selling issues were due to excessively risky products.

One of the unexpected but significant benefits of the pension freedoms is that it may focus the minds of fund managers and financial providers on giving clients what they most likely really want – reasonable returns for very modest or little risk. In others words, safer products that will not cause them to lose their shirts, not to mention their homes, their ability to pay their bills in retirement and their nest egg.

Some sophisticated investors will, of course, want to take more risk than most and that is their prerogative, but most of the population will not because it cannot afford to. What comes through from the BlackRock survey is just how cautious most investors are. Some will be concerned about understanding risk but many will just be worried about losing money. It is that simple.

Some sophisticated investors will want to take more risk than most and that is their prerogative

I welcome many of the new pension freedoms but I remain concerned about how many people will be coerced, nudged or tempted to make the wrong choice, swapping a secure, low-risk but dull income for a riskier and potentially more lucrative but unpredictable alternative investment or strategy.

What is clear is there will be no turning the clock back. The new freedoms offer advisers and clients a golden opportunity to prove they can do the right thing for clients, offering advice and products that give clients the outcome they want, and with the lowest risk possible.

Kevin O’Donnell is a financial writer and journalist

You said:

Julianstevens in response to Garry Heath’s column on Apfa (2 April):

“If Apfa is confident that its strategies and manifesto are correct, why does it not conduct a poll of its members (the question I most commonly find myself asking Apfa) on a whole range of issues – a long list of issues in fact, just a few of which are cited by Garry.”