“There is nothing permanent except change”, so said the “weeping philosopher” Heraclitus circa 500 BC.
Few would argue change was not needed in the retirement income market; it is just no one expected it to be so inorganic and non-negotiable.
The impact of the pension freedoms Budget bombshell in 2014 was immediate and significant.
Revisiting then-chancellor George Osborne’s dramatic statement that people will “no longer have to buy an annuity” reminds us just how harshly the products were painted. Their positioning as the enemy of freedoms resulted in a drastic fall in demand.
This translated into worrying new business figures and share price decimation. Intentional or otherwise (and it is worth noting that the government tax take from the pension freedoms was £1.7bn), Osborne’s announcement duly kicked the bottom out of a £12bn bucket and knocked a few quid off share prices in one fell swoop.
Our research with both advisers and consumers has seen a huge increase in demand for flexibility in response. But it is rather a marriage of flexibility than anything more meaningful driving this.
The narrative in many people’s minds ran something like: “If the old was ‘fixed, inflexible guarantees’ and old equals bad, the corollary is now flexibility – the saviour of all our retirements.” If only.
What this overlooks is the fact that one of the biggest fears in retirement is uncertainty and the guarantee of an annuity mitigates that risk like nothing else.
We are now seeing the realisation dawn that annuities will continue to play a part (perhaps an increasing part) in the average income strategy, irrespective of pot size.
The trouble, of course, is while interest rates remain low, designing sophisticated but not complex guaranteed products is an uphill task for asset managers and insurers.
And while the products historically used for retirement planning are still relevant, the way in which they are used is changing.
Our adviser research points to the likelihood that individual products of yesteryear will increasingly be combined with innovative emerging solutions to create far more personalised retirement portfolios.
The gauntlet has been laid. As American author William Arthur Ward said: “The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.”
Phil Wickenden is managing director at Cicero Research