Non-advised drawdown is fast becoming the next big money spinner for providers left bereft of the wall of annuity cash to which they were accustomed. In typically humble terms, providers talk of non-advised drawdown being their “fastest selling solution ever”, with thousands of customers flocking to the products since they came to the market over the last few months. Advisers are unlikely to advocate retirement planning that does not involve one of their own, but this is about more than saving advisers’ skin.
The insurers offering non-advised drawdown are taking different approaches, with some adopting a kind of default decumulation model and others requiring customers to choose between DIY fund picking and a guided service.
The trouble with any default investment strategy post-pension freedoms, whether in the run-up to retirement or after the event, is trying to map fixed investment processes to what is essentially an unknown timeline. And if the saver doesn’t know when they are likely to need more or less money, how is the provider expected to fill in the blanks? As for getting customers to choose between different services that both fall short of advice, how will this work in a world where we have to compel people to save in the first place? If providers are funnelling customers into drawdown funds without advice, who’s to say we will not start seeing the equivalent of Hargreaves Lansdown’s Wealth 150 appearing in the at-retirement market?
The apparent rise in non-advised drawdown sits uncomfortably with the recent Money Marketing revelation that over two-thirds of Royal London customers have cashed in their entire pension pot, and that around a quarter of those taking all or some of their pension as cash are hoarding their money in bank accounts. Parking cash and potentially whittling away retirement savings without understanding the risk of outliving their money – surely these are not the consumer outcomes the Government was driving at with pension freedoms? Yes it was about boosting the tax take, but how long do advisers have to scream about unintended consequences before someone at Whitehall sits up and takes notice?
Of course, while we are on the subject of unintended consequences, the aftershocks of the RDR are still being felt in the context of pension freedoms. If more savers were prepared to pay for advice, and understood its value, the providers would have no cause to be rubbing their hands in glee.
Natalie Holt is editor of Money Marketing