The retirement freedoms have generated a lot of analysis since they were first mooted in the 2014 Budget. But despite us being six months into the new regime, this talk is yet to be matched by action.
But despite the anticipated innovation not yet materialising, a smattering of new product launches have appeared, and advisers and their clients can enjoy much greater flexibility with enhanced access to a range of solutions in retirement.
Now the dust has begun to settle on the new landscape, we used our latest Intelligence report to see whether you were embracing the new possibilities.
Our first question was simple, asking advisers which products they currently considered as part of a retirement plan (Chart 1)?
The result was perhaps predictable, with drawdown and annuities both suggested by 97 per cent of respondents. The anticipated decline in annuities has not seen them abandoned altogether, although the next question, identifying which products were actually used (Chart 2) saw a much lower response rate for annuities, which dropped to 62 per cent, while drawdown held relatively firm at 94 per cent.
Annuities was still the second most popular product in practice though. Among other vehicles, fewer than half would even consider buy-to-let and only 6 per cent said they regularly used it. The same number said they regularly used equity release, which suggests that, despite renewed regulatory attention, the controversial product is not yet fully accepted by advisers.
Among those who responded ‘Other’ for both questions, Isa wrappers were the most common response. One adviser said “anything that has a value and could be used to generate income or capital” and just one said they still recommended with-profits.
Most prominent among the innovations we have already seen following the freedoms, are ‘blended solutions’ where two or more products combine within a plan. When we asked how often these were used (Chart 3), there was a fairly even spread. The same proportion – 5 per cent – said always as never. There was a slight biased towards their use, with 31 per cent saying almost always versus 15 per cent rarely, but the most common answer was an unsensational ‘sometimes’.
However, when we asked about the future (Chart 4), 89 per cent said they would use blended solutions. Just 1 per cent said ‘never’ with the remainder opting for ‘don’t know’.
We then asked those surveyed to rank various factors in order of priority when it came to choosing products (Chart 5). There was little unanimity in terms of what was most important. The most popular factor – just – was the ability to change income levels in future, but security against funds running out and a guaranteed income were also popular.
Perhaps interestingly, transparency was most likely to be placed last, followed by ability to pass on as inheritance. Bothe of these are issues that have garnered a lot of attention but which clearly do not have the same resonance with advisers. Transparency was also least likely to be placed first by respondents, joint with inflation-proofing
Our next question asked about compliance and whether advisers found it restrictive when planning clients’ retirements (Chart 6). Almost two thirds said they had found some restriction directly as a result of compliance issues, but only 18 per cent said they had found it “very restrictive”.
Next, we looked at so-called pound cost ravaging (Chart 7) – the impact of underlying market at outset on drawdown that was highlighted in Abraham Okusanya’s recent report. Interestingly the idea has gained traction, with 85 per cent saying they did consider it. Despite the phrase only being coined in May, just 5 per cent said they had never heard of ‘pound cost ravaging’.
When asked how the market had changed already (Chart 8), the majority identified a drop in annuity business, roughly evenly split between that fall being offset by an increase in drawdown, and those who saw other products filling the hole left by annuities.
However, despite the fanfare headlines about the new landscape, a not insignificant 23 per cent said they had seen no difference.
The faith in annuities was further endorsed by the next question (Chart 9) where only 7 per cent believed annuities to be finished. And almost half (47 per cent) said they could still provide for an entire retirement.
Question 10 again undermined some misleading headlines, this time regarding irresponsible pensioners rushing to access their entire pot (Chart 10). When asked how many clients had encashed their entire pot, over half (57 per cent) said none had, while 38 per cent said fewer than one in 10.
According to Brian Evans, of Glasgow-based Independent Financial Advice Centre, there has been a n increase in the number of consumers looking to access pots, although maybe this is curtailed for the advised community by their advisers. “People at the lower end of earnings are trying to take pensions when they will need the money in later life. We try to deter them usually to no avail,” he says.
In terms of a potential solution, Mr Evans proposes taking back some the freedoms, “flexibility is needed but perhaps once your fund is below £50,000 there should be a maximum draw to keep some for later life.”
Overall, the key findings of our survey were that there is as yet, no consensus. Despite the freedoms having been with us for six months now, there is little certainty as to how the market will look, or what constitutes best practice within it.
