View more on these topics

Billy Burrows: The ‘new world’ challenges for retirement advice

Billy-Burrows-MM-Peach-700.jpg

As we all return to work after the summer break, the realities of the new world of retirement options are staring us in the face.

The issues facing insurance companies that need to innovate their annuity and drawdown products have been widely discussed. But what about those facing professional advisers? There will be many opportunities but there will also be many challenges.

The most obvious opportunity is to offer more sophisticated retirement income advice for existing clients and to attract new clients who might not have sought advice before. This raises two questions; what additional skills will advisers need, and how will they attract new clients?

In a paper to be published shortly, I make the point that retirement advice is more of a journey than an event and while most advisers probably have good advice processes, they will benefit from being better prepared for the advice journey ahead. They can do this by having a better understanding of the tools of the trade.

These include an understanding of the key annuities and retirement issues and in-depth product knowledge.

Annuities may not be the most fashionable of topics but they are still the only products that can guarantee a relatively high level of income for life. Capacity for loss will play an increasingly important role as more clients with modest funds find themselves attracted to drawdown. If they do not understand the risks and cannot accommodate a potential fall in income if things go wrong, there may be a lot of unhappy pensioners in the future.

The advice for higher-net-worth clients will not change fundamentally but advice for mass-affluent clients will. Many of these would have purchased annuities in the past but will now be attracted to the new pension freedoms. However, when taken through a structured advice process, they may conclude that taking their pension as a lump sum does not make sense because of the tax consequences.

As the complexity and cost of providing advice to the mass affluent market becomes clearer, the question may not be how many new clients can we attract, but how do we attract the right type of client?

If a significant number of people start their journey into retirement by taking advantage of the Government’s free guidance service, advisers will need to find a way of tapping into this. Perhaps they will use the output from the guidance session as their starting point. It is early days but advisers who want to attract new clients will have to figure out how to compete with the guidance service and how to work alongside it.

Burrows 1
Burrows 2

Annuity update

With all the focus on the new pension freedoms, the recent cuts in annuity rates have gone largely unnoticed. Since 1 July, annuity rates have fallen by around 4 per cent, which translates into £200 per annum less for a £100,000 purchase.

Annuity rates have fallen on the back on falling gilt yields. The yield was 3.16 per cent at the beginning of July but is 2.71 per cent now. As the table shows, this 45 basis point fall has resulted in an average cut of 4 per cent.

Annuity sales may have halved since the budget but this does not mean that advisers can ignore the trend for annuity rates. There is still a strong case for annuities when a guaranteed income is the priority.

If bond yields rise back above the 3 per cent mark, we can expect annuities to increase. In the meantime, this sudden and unexpected fall highlights the dangers of deferring annuity purchase. If yields do not recover or fall even further, those who have delayed taking their pension income and subsequently decide that an annuity is the right option may find that the wait has resulted in lost income.

Billy Burrows is associate director at Key Retirement Solutions and director at Retirement Intelligence

Recommended

Danby Bloch: Pension savings must not go to pot

More or less unrestricted access to pension pots in retirement is already tempting people to take the money and run. And next year, when the full flexible regime is in place, the trickle of encashments could turn into a flood. Whether to take the money, how much to take and when will be the stuff […]

Edinburgh-Castle-Scotland-700x450.jpg
4

Cameron issues plea to Scots on independence as fund groups pull cash

The three political party leaders will be heading to Scotland today to try and secure a vote against independence, as uncertainty over the outcome of next week’s referendum sees fund groups pull money out of the country and amid warnings on the impact on mortgages. The leaders of the three parties will be north of […]

Santander-700x450.jpg

Santander chairman Emilio Botin dies

Santander chairman Emilio Botin has died aged 79, the bank has announced. The BBC reports Botin died of a heart attack last night. The board and the appointments remuneration committee are meeting today to appoint a new chairman. The BBC says Botin is credited with turning what was a small regional bank in Spain into […]

Annuity-Arrow-700x450.jpg

Annuity sales plummet 38% following Budget bombshell

The Budget pensions reforms have had a crippling impact on sales of annuities, official figures published by the ABI show. Sales dropped by 38 per cent between the first and second quarter of 2014. However, annuity sales are 42 per cent down compared to the same quarter in 2013, suggesting the insurance products were falling […]

Canada Life annual IHT survey results

75% of wealthy unaware of new residence nil rate band IHT allowance Just 4% were aware the new allowance will be up to £175,000 per individual Lack of awareness of IHT rules means families risk paying a bigger bill than they need 83% think the current inheritance tax rules are far too complex A remarkable […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com