Pensions have undergone many changes in recent years – from the complete overhaul of ‘A’-Day on April 6 2006 to the latest developments announced in the Budget – but these actions also have an impact on the wider investment environment.
Jasper Berens, head of UK funds at JPMorgan Asset Management, says: “UK advisers are going to have to step up to much more comprehensively advise clients on how they take their capital and income from maturing pension pots and, furthermore, how this works in the context of using their other accrued savings pots or their property to support their changing lifestyles… during retirement.
“The announced retirement freedoms may create as much as a £9bn market flow in 2015, equivalent to an approximately 40 per cent increase in UK open-ended net flows. That scale of change is going to have an enormous impact on how advisers conduct business. Given that more than 91 per cent of current drawdown assets are currently adviser intermediated, IFAs are right at the heart of this. Early consumer surveys suggest that roughly 32 per cent of defined-contribution assets will be ‘money in motion’, either entering drawdown wrappers or ISAs, which are not overseen by the pension scheme or trustees.”
One of the interesting aspects of the pension changes will be its effect on platform business, and whether this will be the new conduit for pension investors of the future.
Bill Vasilieff, chief executive of Novia, notes the changes seem to have sparked a lot of pricing changes on platforms but says the real question is what impact it will have on the end customers.
“There are different groups of customers where different patterns seem to be emerging. First, the very wealthy where customers’ pension pots are already at the maximum permitted and the investor is not dependent on their pension for a large part of their income in retirement. A lot of these seem to be saying they have had enough of political interference and will take the opportunity from the reduction in tax rates to get out and cash in their pension investing. They will, of course, be interested in Isas, EISs (enterprise investment schemes) and others,” he explains.
“For the less wealthy, they still need the security that annuities bring and it is likely they will still invest at least a proportion of their money in an annuity to provide a guaranteed underpin. For those in between it is already the case that these people are looking at other ways of investing for their retirement while at the same time investing in their pension plans. That would include ISAs – now up to £30,000 per annum per couple – and property, including, of course, potentially downsizing.”
Meanwhile, Steve Trott, proposition director at Parmenion, notes that the “wall of pension money” that traditionally would have gone into annuities will now sit with consumers armed with increased knowledge from the government’s regulated guidance initiative.
He says: “This will lead to a number of small pots being taken as cash and needing a home. For pensioners with funds who avoid the natural human urge to consume, Isas will be the home of choice in the first instance.
