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Billy Burrows: How do you judge a retirement product’s value?

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This month I want to talk about value for money in financial services, which surfaces in two distinct places. First, the value for money in terms of advice and, second, the value for money of specific products or solutions.

When it comes to trying to communicate the value of advice, it is very difficult for people to value what they do not understand. The value for money from financial products, however, seems to be much easier to portray.

Take annuities, for example: the higher the income, the better the value? Or pension plans: the lower the charges, the better the value? Well, this over-simplifies the issue because there are non-monetary factors to consider too.

For instance, someone could have the highest annuity income or lowest pension plan charges but, ultimately, if the policy is unsuitable for that individual it will be of little value.

That said, when the right solution is found, reducing the cost has obvious benefits. The poor outcomes obtained by those who did not get the best price for their annuities (perhaps because their health was not properly taken into account) has been well documented.

The same applies to drawdown. If someone is using drawdown to provide regular long-term income, costs are a vital factor in the equation.

Higher plan and advice charges will produce less income than a lower-cost solution if invested in the same funds.

But while the industry has quite rightly made a big thing about not shopping around for the best-value annuity, the same spotlight is not being shone on drawdown, where the potential reduction in income could be much more.

Returning to the question of value for money, in the narrow sense product charges and advice fees must be as competitive as possible but, in the wider sense, value for money should take into account other factors such as personal attention and tailor-made solutions. One of the key things clients pay for is peace of mind. Indeed, this can be priceless.

Billy Burrows is director at Retirement IQ and adviser at Better Retirement

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