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No ‘holy grail’ for pension freedom products

No ‘holy grail’ for pension freedom products

Asset management leaders are conflicted on the level of innovation needed from their industry to tackle issues in the retirement market.

Senior executives in the industry admitted they were yet to find the “holy grail” for investors after the introduction of last year’s pension freedoms.

Speaking at an asset management event, industry leaders admitted there was a lack of appropriate products on offer. They added there were “no solutions” but some questioned if innovative products and new launches were necessary.

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The pension freedoms introduced last year removed an obligation for many savers to buy an annuity at retirement. This prompted a shift towards income drawdown products or continued growth investing.

Speaking at a Marketforce event covering the fund management industry, Jasper Berens, head of UK retail at JPMorgan Asset Management, warned the need for guaranteed returns over a significant time horizon was difficult to satisfy.

Advisers have long been concerned that current industry offerings fall short of client needs. There had been expectations of a rush of products from asset managers who expect to benefit from the freedoms, alongside greater savings via Isa changes and auto-enrolment.

Retail markets have seen little but absolute return and equity income offerings. These products have become cemented, but volatility and diminishing yield have kept investors needing more.

The FCA asset management market study has taken a keen interest in whether industry structure is stifling innovation.

Mr Berens said: “What people want is with-profits. The point about absolute return funds is they are [essentially] with-profits but with a different name. [People] want something fund managers can’t produce – guaranteed income or capital. [Fund houses] find it hard to do that without taking any risk.”

Chris Nichols, investment director for Standard Life Investments, said: “I don’t think the holy grail has been found. We want great investment returns and sustainable and diversified investment. We want that for the rest of our lives. There’s no investment solution that gives that.”

He argued pensioners were “uniquely placed to bear investment risk”, despite the challenges of a long time horizon.

“At 65, people expect to die in their 80s, but remember that’s only the average,” he said. “We are talking about a 30-year investment problem.”

However, while questions were asked about the products required in a post-freedoms world, Mr Berens dismissed the idea new launches were necessary. “There are thousands of products out there,” he said.

Others said the sector should focus more on making short-term problems, such as liquidity, less prominent when serving long-term investors, particularly those towards the end of the investment spectrum.

Jupiter Asset Management vice chairman Edward Bonham Carter warned that investment specialists were focused on “flickering screens” that are not relevant to long-term investing.

“We are watching flickering screens,” he said. “Most people should not care about volatility investing in the long term but there’s a dislocation between this and an industry obsessed by liquidity and volatility.”