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A clear picture

Rather than discussing the much talked about ECJ ruling on gender discrimination, I want to focus on what went on in the run-up to the decision being made.

The industry has lacked leadership in the provision of guidance and information for advisers. In producing our own guidance notes, we found it very difficult to gain open opinion on the potential consequences for clients from providers and industry bodies, who I suspect have been quiet, in a tactic not to unduly upset the court.

The consequence has been communications which have passed through my inbox, targeted at potential customers, which have, I suggest, crossed the delicate line between information and influence, particularly for those firms which do not give advice. We need to take care when these big issues are about and the big brains and providers need to help us all out.

And so then to the challenges of Solvency II, increasing longevity, the impact of the changing risk pool on the future pricing of annuities and the need to work out how we can equitably share these risks. We simply need to encourage more open debate and discussion, not to create business or unfair competition but to improve the understanding of the stresses and strains that currently apply to the new pricing models be created today.

’We need to take care when these big issues are about and the big brains and providers need to help us all out’

When discussing annuity rate moves with a provider recently,I was reassured to be reminded how strong the link is with the available yield on gilts and that has been reflected in positive moves in pricing in recent weeks. We do in turn need to be reass-ured that the margin is fair and consumers are offered the best possible return for their money.

The factor which all advisers are highly capable of understanding is inflation and the impact of inflation upon a level income over a period of time. We are experiencing RPI inflation of 5.1 per cent in the knowledge that pensioners typically experience a higher rate of inflation due to the different profile of their basket of goods. Age UK, with its excellent Silver RPI, recently suggested that a 65-year-old typically experiences 3.3 per cent inflation in excess of RPI. So today we can reasonably suggest that pensioners can be experiencing over 8 per cent inflation.

To explain this to people, we recently developed a simple spreadsheet to calculate the core budget requirements for a client alongside their lifestyle budgets and graphically projected this forward to show the individual how their income needs will grow. This allows the client to positively accept inflation risk or counter it through appropriate product selection. Presenting complex issues in clear ways demonstrates the importance of advice and the real value that the adviser can provide their client. ’We need to take care when these big issues are about and the big brains and providers need to help us all out’

Steve Lewis
Managing director
The Retirement Partnership

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