Your IndustryFeb 22 2018

Is there enough product choice to meet generational needs?

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Is there enough product choice to meet generational needs?

When clients do seek advice, financial advisers and planners should have a range of products to draw on, whatever the financial outcome in mind.

But recent reforms to pensions, as well as changes to savings vehicles, have meant that either providers cannot keep product ranges up to date, or the market is flooded with similar products as companies jump on the bandwagon.

Take the pensions freedoms – since the implementation of these freedoms three years ago, asset managers and pension providers have come to market with plenty of new funds and products which aim to meet the retirement needs of those who decide to go into drawdown, rather than opt for an annuity.

For example, there are now numerous multi-asset income funds aimed at those who want to draw an income in retirement.

Colin Dyer, national advice manager at 1825, says: “There are lots of great solutions and strategies to support clients through various life stages.

“The modern pension products can adapt to a client’s changing needs, first of all around accumulation needs during working life.

“Then, a range of additional features can be switched on as a client begins to take tax-free cash, ad-hoc lump sums or regular income, ultimately supporting the passing on of wealth onto the next generation at the end of their life.”

In flux

The generation approaching retirement today do have a range of products at their disposal and are likely to be homeowners.

Kelly Greig, tax, trusts and estates partner at Irwin Mitchell Private Wealth, explains: “The early boomers who were able to retire in the past 10 years or so may have had the best of all worlds, in terms of valued properties, decent pensions and the opportunity to do some effective inheritance tax planning.

“Those retiring now, or in the next few years, may well have the valuable homes but much will depend on the nature of their pensions.”

She continues: “Those blessed with decent index-linked pensions, from good company or government pension schemes, have an advantage over those who can’t get good annuity rates or whose employer went out of business.”

I think there is enough product choice, it’s getting people engaged and understanding that they have to do something that’s the trick.Jamie Clark

But the situation for many who will retire in years to come is in flux.

Ms Greig highlights that pension freedoms, which were announced by then-chancellor George Osborne in 2014 and which came into practice in the 2015-2016 tax year, heralded a different kind of approach to funding retirement.

“Before that, pensions were all about secure income in retirement, now they have become another tax planning vehicle,” she suggests.

For some, the range of products available to prospective retirees is not the issue, but rather it is the level of engagement that is of more concern and the knowledge about how best to use the products.

Mr Dyer acknowledges: “There are some great trust options that allow clients to pass on wealth to the next generation while retaining control over beneficiaries and investment decisions.

“Ultimately, we need to see more people in the position that they have intergenerational needs, rather than come up with new products as, overall, there are a good range of solutions and strategies that are available to support intergenerational wealth transfer.”

He notes: “If there is a gap, I think it’s in education.”

Encouragement needed

In the pensions industry, steps are being taken to encourage savers and investors to engage with their pension pot.

The implementation of auto-enrolment is being heralded by some as a way to ensure people get into the habit of regularly saving into a pension.

Jamie Clark, business development manager at Royal London’s intermediary pension business, says: “I think there is enough product choice, it’s getting people engaged and understanding that they have to do something that’s the trick – especially if they have other financial pressures and priorities.

“It’s hoped that initiatives like a simple annual pension statement and the pensions dashboard will help drive engagement.”

Pensions is not the only area of financial planning where questions have been raised about the sheer number of products available.

As Simon Bashorun, financial planning team leader at Investec Wealth & Investment, points out: “For certain needs, it could be said that there is so much choice that, when combined with frequent legislative changes, the options can cause confusion.

“A good example of this might be savings options for millennials following the introduction of the lifetime Isa.”

In the savings space, Isas have always been one of the simplest and most accessible savings vehicles.

For those planning for long-term care costs, it could be said there is a lack of products specifically addressing this need.Simon Bashorun

Easy to understand, they have proved to be a popular way to get people to start saving towards a financial goal.

Just a few years ago, there were only a couple of Isa products available to consumers – the cash Isa and the stocks and shares Isa – and the junior Isa for those who wanted to start setting aside money for their children to access when they were old enough.

But the Isa has begun to take on another layer of complexity recently, with the launch of the help to buy Isa, the lifetime Isa and the innovative finance Isa, among others.

In this instance, more choice may not mean a better outcome for consumers.

Jade Connolly, head of advice at Ascot Lloyd, agrees: “With recent government announcements about the junior Isa, flexible Isa, help to buy Isa and new Isa, combined with the frequent changes to pension legislation, I would suggest we have too much choice available and more education is needed on how to get the very best out of each product already on the market.”

Even a financial planner, familiar with the range of products available for later life planning, intergenerational goals and simply to save, may struggle to keep up with the raft of government changes in recent years and the sheer volume of products launched to keep up with those reforms.

Solutions for all?

There is acknowledgement that the more changes are made, the more it deters people from investing and saving.

Frazer Wilson, senior consultant at Thomas Miller Investment, warns: “While there is more choice than ever to help us save, the simple truth is that significant numbers of people under 50 have little or no savings.”

He believes the changes in legislation and general uncertainty have caused many people to put off taking financial action.

“The challenge to our industry is to help create financially secure individuals, rather than to simply offer solutions to the wealthy,” he adds.

But while much of the market would appear to be well served there is an area where a dearth of products is becoming cause for concern – that is, funding care in later life.

“For those planning for long-term care costs, it could be said there is a lack of products specifically addressing this need,” observes Mr Bashorun.

“Politically, this has been an area that has not proved popular to tackle and it may be one that is not viewed as particularly profitable by providers.”

He suggests: “However, with a growing number of individuals likely to require care over the coming decades, perhaps this is an area in which we will see some development.”

Mark Moran, director of intermediary sales at Golden Charter, points out product choice does exist in the funeral plan market.

"For me, the debate is whether sufficient clients are made aware of those products and how they can benefit their particular circumstances," he notes.

"I can't speak for the wider financial services market for 'later life' products but I am fully aware that many advisers still do not talk to clients about issues that, if addressed earlier, would hugely assist them."

eleanor.duncan@ft.com