Following my series for Money Marketing last year looking at the tools of the retirement advice trade, I want to move my focus now to the changing nature of the retirement income market.
There are some major topics to get our heads around, including robo-advice, sustainable income levels from drawdown, the future for annuities, Brexit and Trumponomics.
Let’s kick off with a round up of some of these big issues.
Donald Trump won the US presidential election on the back of bold economic plans such as cutting taxes, restructuring trade deals and introducing large fiscal stimulus measures focused on infrastructure and defence.
But Trumponomics– dogged by a lack of consistency and a style of delivery that often leaves room for multiple interpretations – has made predicting what will actually happen to the US economy challenging. All eyes will be on it to see what happens next.
With increased certainty around the UK’s negotiating position comes increased concern about how events may unfold. There are several things to watch out for. The first is the impact of a weak pound, which may translate into higher inflation and interest rates.
There is also the potential for increased volatility in equity markets. If this proves to be the case it will have been better to have taken defensive action in advance rather than be caught on the hop. Even if markets continue going up, it reminds us that sequence of returns risk is a real-world phenomenon.
The future for annuities
There should be no need for me to hark on about rising bond yields and rising annuity rates, as this should be self-evident. Instead, watch the relationship between annuity yields and the expected returns for lower-risk drawdown portfolios.
If the yield on the benchmark 15-year gilt increases from the current level of 1.8 per cent to 2.5 per cent or more, and equity returns come off the boil, annuities could potentially start giving drawdown a run for its money again. This dynamic may be the one to watch in 2017.
Billy Burrows is director at Retirement IQ and adviser at Better Retirement