As annuity providers, brokers and advisers start thinking about their strategies for 2015 when the new retirement options and the guidance guarantee become available, it might be helpful to look into the crystal ball and predict what the new world of retirement options will look like.
Among the many changes I predict, none will be more important than the changes to the customer journey.
Before the Budget, the call to action for most people was to “shop around for the best annuity” but soon the call to action will be “seek help and guidance”.
I am more optimistic than most that help and guidance will encourage more clients to engage with the decision-making process and this should result in better outcomes.
However, I do not think the official guidance guarantee service will achieve this on its own because most people will need more help and guidance than the official service can provide in the short time it will be allocated.
Therefore, I envisage a number of trusted brands offering their own version of guidance, which will be more comprehensive and may include regulated advice and the option to arrange the chosen annuity or drawdown policy.
Now is not the time to speculate about whether the guidance service will work, rather it is the time to speculate over the better outcomes that could be achieved if people get the right level of guidance or advice.
With a better understanding of the key issues and more knowledge about the new options, I expect many more clients to take advantage of the more flexible options such as investment-linked annuities and drawdown.
There will be a strong case for annuities, both as a standalone investment and as part of a broader retirement income package, which might include a combination of products.
There are a number of technical issues and sound financial planning reasons why a combination of options might produce better outcomes.
For instance, the reduction in mortality cross-subsidy from the expected fall in annuity sales will mean the optimum time to buy an annuity will move out and a better understanding of capacity for loss and the risk from sequence of returns might change attitudes to drawdown.
In conclusion, the over-used cliché that “retirement is not an event but a journey” will have a new relevance as people come to grips with the new options and importance of taking a longer-term view of their retirement.
Billy Burrows is director of Retirement Intelligence