Pensions  

Navigating a changing landscape

  • Identify the problems in the annuity market
  • Understand the challenges advisers are experiencing with PI insurance
  • Identify the best options for retiring clients
CPD
Approx.30min
Navigating a changing landscape

The decision about how to access a pension pot is perhaps trickier than it has ever been.  

Historically, annuities were the most popular retirement vehicle, and will have proved a sensible approach for many – especially when rates were attractive.

But recently, a number of factors have tipped the balance against them: the arrival of pension freedoms in 2015 has meant consumers are now afforded greater choice on how to decumulate their pension pots.

Plus, a combination of falling gilt yields and increasing longevity has sent annuity rates crashing to record lows.

Therefore, navigating the retirement landscape can be a challenging task for advisers and consumers alike.

This was covered at two events at the FTAdviser Financial Advice Forum in London and Birmingham, where industry experts discussed the way pension freedoms have transformed the market. 

A number of panels talked about issues such as annuities, drawdown, contingent charging – to name a few. 

John Porteous, head of distribution at Charles Stanley, highlighted the importance of individuals making the right retirement choices. 

He explained there was an increasing tension between the actual assumption of the transfer of wealth, and the aspirations of people approaching retirement as more of the Generation X cohort are increasingly less confident about their personal retirement than baby boomers. 

Mr Porteous said: “The bank of mum and dad, that has actually funded everybody through school, through college, through an initial deposit – because of the paucity of carers and care around – the bank of mum and dad is having to call in the debt.”

He added: “Most of the younger generation are expecting to have to provide financial assistance to their parents.”

So, are annuities still relevant or have they lost ground to other retirement mechanisms? 

Annuities 

Paul Speight, head of key account development at Canada Life, told the FTAdviser Forum: “There are an awful lot of people who are now not buying an annuity. Most people are accessing their pension funds to get their lump sum.”

But Mr Speight stressed that annuity sales have plummeted since the introduction of pension freedom rules in 2015, and the annuity market has seen a significant shift away from advice. 

“If drawing income from a defined contribution plan is now how consumers plan to take their retirement income, is it a case of not buying an annuity or not buying it yet?” Mr Speight asked. 

Helen Morrissey, spokesperson for long-term savings and retirement at Royal London, said annuities still had a pivotal role to play in retirement portfolios. “It is certainly not the end of annuities for the vast majority of people. For most people at some point in their retirement there is going to be a need for a guaranteed income.”

She added: “For [most] people, age 65 is not the age to buy an annuity. With pensions freedoms, I am hoping people realise that they have flexibilities to when they annuitise.

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. According to Paul Speight until recently a 4 per cent withdrawal rate was deemed the ‘safe’ rate that ensured sufficient capital remained to fund a similar level of income through retirement, but research based on UK markets suggests the rate should be closer to:

  2. True or false, MPAA is intended to counter individuals from using flexibilities to pay into a pension, gain the tax relief and then withdraw the pension 25 per cent tax-free?

  3. Capped drawdown withdrawals may not exceed the government actuary department by more than:

  4. Large caps have outperformed UK small caps over the past 20 years, true or false?

  5. Why does Helen Morrissey say that annuities still have a pivotal role to play in retirement portfolios?

  6. In 2017 MPAA:

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You should now know…

  • Identify the problems in the annuity market
  • Understand the challenges advisers are experiencing with PI insurance
  • Identify the best options for retiring clients

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