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EventsMar 23 2016

A captive market

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Scores of financial advisers flocked to the plush May Fair Hotel in London on 2 March for the FTAdviser Retirement Freedoms Forum, one year on since the advent of the changes.

While the groundbreaking freedoms at retirement have been heralded as a boon to the advisory sector, disappointing annuity rates and faltering drawdown plans amid heightened market volatility has left many advisers scratching their heads over the best income option for pensioners.

The annual forums are designed to equip advisers with information to prepare them for future challenges facing their clients’ pension pots as well as providing insight from some of the industry’s leading figures.

First up to the lectern was Yvonne Braun, the Association of British Insurers’ director of long-term savings policy, who explored ways ahead for insurers post-pension freedoms.

Ms Braun reaffirmed the trade body’s preference for the introduction of flat-rate tax relief on pension contributions as opposed to the pension Isas alternative, ahead of big changes to pension tax relief that were expected in the 16 March Budget.

She also called for the pensions equivalent of a mid-life health check, to ensure people are saving enough for retirement, and heralded the concept of a ‘pensions dashboard’ where savers can view their pension pots across providers and schemes in one place.

The highlight of the session arguably came from the Q&A session, which followed her presentation. Advisers quizzed Ms Braun on why the trade body had not taken action against members over pension exit fees.

Ted Shaw, an adviser at East Sussex-based EJ Financial Limited, said he had a client who wanted to get their pension cash, but faced a market value adjustment of 35 per cent, even though the individual was only six months away from retirement age.

In response, Ms Braun recommended that advisers flag unacceptable exit charges with the FCA.

She said: “A lot of the structures that we have used in the past were devised by very clever actuaries with the best of intentions, but were not very well understood by the general public. That is not good.”

She added: “The key product now is the auto-enrolment pension, which is very plain and vanilla, charge-capped, and governed by an independent governance committee.

“We are in a much better place in terms of trust, but it hasn’t fed through yet in terms of perception as we are still dealing with all the exit fee issues that have come up last year and are being dealt with now, as well as all the structure issues. That is still ongoing.”

The next keynote speaker, pensions minister Baroness Ros Altmann, revisited the topic, stating the Government was aiming to clamp down on ‘unfair’ exit charges, and explored the role of technology in streamlining and driving down the cost of advice.

She also revisited the Government’s plans for tougher regulation on master trusts amid concerns that the current approach could be putting savers’ retirement funds at risk.

In addition, the former pensions consumer champion also used her speech to implore industry providers to create new retirement income products and services.

“The industry needs to wake up. This is a real opportunity for new products and services,” she said.

She added: “I am calling on the pensions industry to introduce more new approaches and make their products more engaging.”

What is more, Baroness Altmann praised auto-enrolment as a “huge success”, but added it was only one facet of the greater pension revolution process.

She said: “The new state pension, plus auto-enrolment, plus the review in the new state pension age will give us a sustainable basis for future retirement income – and this is just the beginning.

“We all know that even if you have got the new state pension in full, plus the full minimum level of auto-enrolment contributions, it won’t be enough to satisfy most people’s desired living standard [at retirement]. On top of this we need people to want to do more.”

The final keynote address was delivered by Jeff Prestridge, personal finance editor at the Mail of Sunday and Financial Adviser columnist.

He highlighted the advent of pension liberation schemes as one of the more prominent issues following the pension freedoms, and called on the Government and regulators to do more to curtail the practice.

Citing a report by accountancy and business advisory firm BDO, Mr Prestridge said around a third of the £1.5bn of fraud reported in 2015 was related to financial services, and in particular pension liberation.

He said: “Of course, pension liberation is a misnomer, because the consequence of falling for such a scam is pension decimation.

“It is alarming that such fraudsters are thriving, and what is even more distressing is that no one, neither the Government, the pensions regulator, the FCA, or the DWP seems to be doing anything to eliminate such vermin from the pensions arena.”

He told the conference: “In my eyes, pension liberation is the biggest pension freedoms scandal. It is here and it is not going away unless people in a position of power start doing something about it.”

Mr Prestridge evoked spontaneous applause from the audience at the event after labelling some decumulation pension regimes that were formed prior to pension freedoms day as no longer fit for purpose.

In addition, he said advisers should be “braver” when it came to fee disclosure, adding: “Publish it in pounds and pence on your website. I promise you it will not put off potential clients.”

Panel

Emma Ann Hughes, editor of FTAdviser, hosted a panel session which provided food for thought about the dangers of drawdown amid a period of high volatility in global markets.

Panellist Gavin Casey, distribution director at Aegon UK, said the heightened uncertainty in the investment environment had increased the probability of drawdown pension pots running dry from 5 per cent prior to the groundbreaking changes at retirement to 20 per cent now.

He added: “If you take the example of individuals who went into drawdown just after pension freedoms, you would be hard pressed to find anyone who has taken any sort of withdrawal who is not down 10 per cent on their original investment.”

The contentious topic of second-hand annuities was explored by the three-man panel, which also included Matthew Smith, managing director and chartered financial planner at Buckingham Gate Chartered Financial Planners, and Nick French, managing director, head of UK wealth management, Russell Investments.

Mr Smith said an annuity trade-in market posed a reputational risk to advisers and threatened to leave the financial services industry’s reputation even lower than it already is.

He said: “There could be accusations of both advisers and providers having charged a fee to sell their original annuity and then both advisers and providers charging a fee to sell it back again.

“I think in a way, the sale of an annuity, from an advice perspective, is going to be similar to a defined benefit (DB) transfer in that it is probably going to be one of those areas where in 99 per cent of cases it is almost universally going to be a bad thing to do unless insurers are going to be especially generous with their offers.”

Baroness Altmann held a different view. Responding to Mr Smith’s comments, she told Financial Adviser that a reputational risk was unlikely for advisers, adding: “We do not know who will want to sell an annuity, we do not know if it would be a wide market.

“It is an opportunity for people they have not had before. The people who probably want to sell may not have had an adviser in the first place. They may have bought a single life annuity, but now want cover for their spouse.

“Circumstances may have changed or the individual may not have needed an annuity in the first place but they did not have the option.”

Meanwhile, Mr French said that while 10 per cent of retirement income was derived from individual contribution and 30 per cent was attributed to pre-retirement pension pot growth, the lion’s share (60 per cent) was generated at retirement.

“It shows the importance of [making sure you are covered for a good] period of time and making sure that the investment strategy is right and you stick with it,” he added.

The issue of insistent clients has come to the fore following the introduction of the pension freedoms, with some clients either wanting to cash in their pension pots or trade in their generous DB pension for a defined contribution scheme.

The majority of the audience raised their hands when asked by the panel chair if they had been faced by insistent clients in the past 12 months.

Mr French said advisers should liaise with their professional indemnity insurers when handling such clients, adding: “It is ultimately a judgement call. You need a strong process if you are going to take on an insistent client.”

Mr Casey expressed caution on the sentiment that following the FCA’s three-step process on insistent clients to the letter was a foolproof protection against claims.

He said: “Saying no to an insistent client is not easy to do in practice when they are sitting in front of you saying, ‘I understand the risks but I want to do it anyway. There is a financial incentive to doing that for them.”

Myron Jobson is a features writer at Financial Adviser

Breakout sessions

A quartet of industry providers individually hosted a number of more intimate breakout sessions throughout the day.

The sessions hosted by Leigh Fisher, London and Home Counties sales manager for Investec Structured Products, focused on how structured products could provide an inexpensive protection to retirement portfolios, and explored the safest level of income to take to preserve capital post retirement.

Katherine Dryer, product specialist director, fixed interest and multi-asset at Jupiter Asset Management, discussed what alternative natural yielding products were available with less capital volatility and how a collaboratively managed distribution style funds investing in equities and fixed interest could offer low cost with low volatility.

Meanwhile, Toby Nangle, co-head of global asset allocation, head of multi-asset, Emea, at Columbia Threadneedle Investments, spoke on the key considerations for pensioners in the post-pension freedoms landscape and the income strategies available to them.

Alexander Boni, associate regional director of Russell Investments UK private client services and William Edge, consulting director, explored a similar theme, as well the steps advisers could take to ensure that their clients remained calm in an uncertain investment landscape.

Panellists in London

Matthew Smith is the managing director, chartered financial planner at Buckingham Gate Chartered Financial Planners. He has been advising clients for most of his adult life, having previously worked for both Lloyds TSB and Wesleyan Assurance Society.

Nick French is managing director, head of UK Wealth Management at Russell Investments. He previously held the roles of manager, regional director and head of advisory at UK IFA sales. Prior to this, he worked at Zurich and Skandia.

Gavin Casey is the distribution director for Aegon Ireland. He has held a number of positions in his 17 years with Aegon, including leading retail bank and retirement products distribution.

Sound bites

Baroness Ros Altmann on Pension Wise: “I think we need to give Pension Wise a real chance to work. I like the idea of a free, unbiased place where people can go and get guidance on their options. They can then understand the value of going on to get financial advice.”

Jeff Prestridge on cuts to lifetime allowance: “I have no problem if the Government wants to restrict how much we put into a pension and it does that through a £40,000 annual contribution cap, but to penalise pensioners’ success – which is what the lifetime allowance is doing –seems royally unfair.”

Matthew Smith on changes to pension legislation: “One thing the Government can do is slow down the rate of change in pension legislation. Despite some of these changes being very positive, consumers are going to get so disengaged with pensions in general because it seems to be a game of political football.”