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Vanessa Owen: Retirement advice is now about managing client choices

The challenge of innovating retirement propositions in the brave new world of Budget changes

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I am sure I won’t be alone in the retirement income industry in having absolute clarity about where they were when the 2014 Budget was announced. Or in recognising the significance of the fact that stories about retirement made the front page of national newspapers for six consecutive days.

If the Chancellor’s announcements live up to our expectations, when we see the final legislation the retirement income market will have changed fundamentally, giving those approaching retirement meaningful choices as to how they structure their income.

Perhaps more importantly, it will give those saving for retirement the confidence to save into their pension safe in the knowledge that, whatever retirement finally looks like for them, they will not feel they are being assigned a one-size-fits-all retirement income product that may or may not meet their needs.

In future, retirees will be empowered to make up their own mind as to how they structure their retirement income (one could argue that in fact that has been the case since 2011).

This is all to the good but, paraphrasing William Lamb and Spiderman: with great power comes great responsibility. The quality of the guidance that will be provided will be critical.

A recent study pointed out 82 per cent of people at retirement underestimate how long they would live and our own research carried out among over 50s prior to the Budget found that most of them did not have any idea how to convert their pension fund into an income. 

For this reason it was perhaps not surprising that annuities were the most well-known retirement solution. 

The extent of the lack of awareness of how to go about planning your retirement income was brought home to me when I heard from a colleague at the Pensions Advisory Service that they regularly get calls from retirees asking them if they were the body responsible for providing a pension income.

This presents an interesting challenge when one starts thinking how to innovate retirement propositions in this new world. On the one hand there could (and we hope there will) be unconstrained flexibility.

Yet, at the same time, we must make sure innovation is anchored by thinking about consumer outcomes.  What do consumers really want and need post-April 2015? and how do we ensure they understand the pros and cons of alternatives to simply setting up a guaranteed income which will definitely continue to pay you for the rest of your life?

A small amount of knowledge can be a dangerous thing and we have always encouraged those approaching retirement to seek advice before deciding how to take their retirement income in order to help them to make the most of
their fund.

However, the retirement income changes that were announced have created a significant opportunity for advisers to readily demonstrate how they add real value to their clients’ retirement plans.

This is especially true for those advisers with clients due to retire ahead of April 2015 as many of the forthcoming legislative changes have not yet been finalised.

Since the Budget we have taken numerous calls from advisers looking for guidance on what recommendations they should be making to their clients in the short, medium and long term.

There is much to consider, namely whether a client due to retire needs to take an income and whether they want to take their tax free cash and a structured income but want to keep their future options open.

In the wake of the Budget, many predicted the death of the annuity, but retirees have not had to annuitise since the abolition of compulsory annuitisation at the age of 75, yet they remain a popular option.

The certainty and guaranteed lifetime income that they offer will prove attractive to many – perhaps even more so than the thought of owning a Lamborghini.

Whether a client selects an annuity, drawdown or a product yet to be developed, what is important is that they are aware that it’s all to play for, and are encouraged to consider all the options now open to them.

Vanessa Owen is head of annuities at LV=

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