Few prepare for the unexpected but experience shows perhaps we should... Yesterday’s promises are increasingly expensive: the National Insurance Fund is predicted to breach its funding solution by 2032, but reforms have tended to be piecemeal and lacking in a clearly agreed long term objective. Customer experience in current retirement solutions is neither easy nor convenient and does not engage customers or equip them to make informed decisions. From buy outs and longevity, to member options and super funds, we look at how the pension landscape is changing. Technology in the retirement industry lags behind other sectors and the pressure to keep up with ongoing regulatory change has constrained innovation to create more affordable and sustainable solutions. What will pensions and savings policy look like for future generations? Will pensions even exist? “Doing nothing” is no longer an option and eventual collapse is inevitable without major reform.* *(Source: EY report – The future of retirement – A vision for pensions delivery.)
- Equity release is getting a lot more attention. Not necessarily executing it but allows housing wealth to be brought into retirement planning discussions.
- Cash flow modelling is essential but should not be followed slavishly. It should rather be used as a tool to discuss and manage objectives. Few people are looking at lifetime expectancy. Many advisers are still sticking to a fix rate (some still sticking to 4%) to work out how much a client can drawdown. Do the advisers have everything they need from providers/technology to deliver increased sophistication with potentially lower fees?
- Decline of DB and a shift to DC. While DC provisions is increasing in coverage, often it’s still inadequate. Employers are increasingly delegating pensions to pension providers. Providers are looking at new ways to increase lifetime value.
- Tax relief is still in play. Flat-rate seems hard to deliver but reducing benefits for HR taxpayers is fair game. FCA has still to conclude on default guidance. How will tax-relief changes affect demand for advice?
- Retirement planning is complex. Advisers spending much more time helping clients to understand issues here than they do on accumulation. Robo-retirement would be too hard to deliver that is why many believe that technology will be there as a tool but it won’t replace the people.
- Is there a risk that technology will disintermediate traditional advisers? Advisers believe that while the pension’s dashboard is progressing slowly it will likely deliver (in some form). There is also talk of the potential changes that Open banking and universal ID might bring, providing greater accessibility of client financial information.
- Older clients are starting to move away from focusing on leaving wealth to thinking about how they sustain themselves in retirement.
- Does the decline of DB necessarily mean a decline in client retirement wealth? Who is going to advice all these people? Advisers are not short of clients. Are the providers going to close the advice gap?
- FCA seems to be setting up their rules based on clients with low money pots that doesn’t represent advisers’ clients. Also regulation is ever changing so it is hard to give advice when you don’t know what future holds and as they can look in retrospect advisers are on a no-win situation. History shows that when something goes wrong, if there’s enough of them, it’s someone else’s fault (PPI)
- Annual allowance- high earners that have reached the limit might consider moving abroad or becoming full time consultants causing a lots of problems.
- People still think that when they run out of money the government will provide and bail them out. So they don’t want to pay for advice.
Conclusions and Solutions
- There is no silver bullet solution. A hybrid approach fitted to specific client needs is, as always, the best option.
- Education is key but no one seems to be doing it right or enough.
- In the same way that clients are segmented, so should the rules.