Schroders chief investment officer Alan Brown believes the asset management industry needs to develop more products for the post-retirement arena.
Brown says as people live longer and the potential grows for the requirement to buy an annuity at 75 to be relaxed, the need for asset-decumulation products will increase.
His comments carry significant weight when you consider that recent research undertaken at the University of Southern Denmark found that at least half the babies born in the UK in 2000 will live to celebrate their 100th birthday.
He says: “Products such as the hybrid defined-benefit and defined-contribution pension schemes seen in the US are the areas that asset managers need to look. You could even go as far as modern-day tontines – without the arsenic.
“In five years time, I would expect asset managers to have produced 100 or so products for retirement, with around 20 succeeding. It is a difficult area but it needs to be tackled.”
Some fund firms have made attempts to tackle that sector but with mixed results.
Schroders launched its income maximiser, which offers a 7 per cent annual income by investing in stocks and using covered call options. The £492m fund is second out of 67 funds in the UK equity income sector over the past three years. Others, such as Insight, have since launched similar products in the area.
But Schroders has also seen setbacks, having had to close its defensive income fund a year after launch after failing to get the same level of interest as the maximiser. The fund closed at around £11m with a large proportion of the assets courtesy of seed money.
Earlier this year, Fidelity renamed and merged a number of its wealthbuilder and retirement products into various target-dated funds.
Fidelity says the move was clear after it found current preferences among advisers, retirement planners and benefit consultants for lifecycle strategies which do not have residual exposure to equities, despite the assets being used to purchase a drawdown portfolio or other investment strategies. The firm says the simplification of the range will see a fixed- income and cash offering that reduces volatility.
Fidelity International head of UK DC Julian Webb says: “The nature of retirement is changing, with individuals now living longer and needing to anticipate the higher healthcare costs associated with greater life expectancy. Increasingly, investmentpeople are staggering their retirement by moving to part-time work to supplement their income. The requirement for income as well as capital growth of retirement savings contribute to the dilemma of how to manage decumulation.
“The compulsion to annuitise at some point before the age of 75 also greatly limits people’s choices at this key point in their personal financial planning. Beyond ensuring an annuitised income that will match the level of state benefits, there should be freedom of choice for retirees to make their own decisions, in conjunction with their professional adviser, on how they should be planning their finances.”
These are just some of the examples of products that asset managers have looked to launch in the asset decumulation area while a number would point to multi-asset offerings and funds in the active, balanced and cautious space as attempts to counteract that need. The question is whether that is enough?
Hargreaves Lansdown senior analyst Meera Patel says: “The worry is that as the world of investment gets more complex, we see the introduction of products that are not straightforward enough for investors to understand, particularly when we have absolute return and multi-asset funds that look to tackle that area already.”