I’m going to start this month’s column with a stat attack. You’ll have seen some of these before, but stay with it because I’m doing it for a reason.
The column will reach a glorious crescendo, hooking in all the facts and figures from the start, before ending on a quiet yet thoughtful note, which will leave you yearning for another instalment next month. Either that, or it’ll be a poorly formed rant. No one knows yet. Exciting, isn’t it?
So here we go…
- Some £23bn has been withdrawn from pensions since 2015, when the new freedoms were announced.
- Direct platforms (a hint of what’s to come) have grown from £98bn in 2013 to £185bn in 2017.
- The personal pension market is worth more than £400bn.
- The drawdown market is worth £384bn.
- Fifty per cent of assets, more or less, are in pension assets in the advised platform sector.
- One-third of plans entering drawdown are non-advised.
- One-third of annuity purchases are non-advised.
- Two-thirds of drawdowns are pension commencement lump sum only; no income.
- The UK baby boom isn’t when you think it was. There was a small boom in 1946 because of post-war jiggy, but the real boom was in the mid-1960s. Most baby boomers here are only just 60.
- New research from Just suggests that up to 3.6m over-65s have been forced to retire involuntarily without what they consider adequate provision in place.
That’s enough for now. What’s making me think of all this is a piece of work we’ve been doing at the Lang Cat about how well our industry (providers) and profession (advisers) is positioned for helping people create coherent retirements in a world where advice is unaffordable for many. We’ll come back to that assertion a bit later.
The potted summary is: not all that well. If you’re an investor who doesn’t use the services of an adviser, you are pretty exposed. As we’ll see in a moment, the product and functionality set you can access is much more limited than that available to advisers.
But everything isn’t unicorns and glitter in the advised side either. Yes, there are more products out there that try to do interesting things; we might mention the Canada Life (formerly Retirement Advantage) retirement account hybrid drawdown/annuity mash-up, and Just is doing its thing too. There isn’t even much to get excited about on the platform/investment side, bar 7IM’s retirement income service.
No, it’s slim pickings out there. And that’s been adequate for two reasons: first, we haven’t hit the boom yet. Most retirees are of a vintage where they enjoyed defined benefit pensions. The spike in transfer activity was big, but still didn’t really dent the £1.3tn in DB schemes. Apart from that, their drawdown pots are supplementary, probably through either defined or freestanding additional voluntary contribution arrangements if they changed job later in their working lives, or if their scheme was yanked from them.
Not pin money, perhaps, but not essential either – that’s why we see the high proportion of PCLS-only drawdowns.
The second reason is that advisers have picked up the slack, especially where individuals do require income from their drawdown pots. This has arguably worked for everyone – clients get an adviser, advisers get some nice chunky pension pots to charge 1 per cent on, and a huge bunch of potentially awkward customers take their potential mis-selling liabilities and plonk them firmly on to advisers’ PI books.
But all this won’t be good enough for long. And I’m not the only one to think so; our friends in Stratford think so too. The Financial Conduct Authority’s Retirement Outcome Review (ROR, and I can’t be the only one to think that it should be the ‘Retirement Outcomes Ambitious Review, or ROAR’) has exactly this in its sights when it talks in CP 19/5 about “retirement investment pathways”, and frankly putting what my Irish friends would call ‘manners’ on the whole thing.