It is interesting that the Retirement Account remains an advised sale only and it will not be long before it and/or similar products appear in the direct to consumer space, where it is likely to have appeal. Research done by the CII showed that 41 per cent of people approaching retirement would like to use a combination approach, although I suspect that is mainly down to people’s lack of understanding and a belief that having a combination will mean at least they got one bit of the puzzle right.
The investment industry would tell us it has delivered many new solutions to tackle the various pension freedom conundrums, but one could argue the new multi-asset and diversified growth strategies are little more than managed funds and with-profit funds in sheep’s clothing. These strategies, used in isolation, offer a one-size-fits-all approach that is no longer fit for purpose in the world of pension freedoms, where everybody’s retirement will be different and personalisation is key to good retirement outcomes.
Investment strategies need to reflect someone’s need for cash and income, particularly in the short term, as well as their personal circumstances and appetite for investment risk. Tailored investment strategies have never been so vital.
If we look specifically at multi-asset versus a multi-fund approach, someone who needs income would need to sell units in the multi-asset fund, which would be taken from all asset sectors. This would result in crystallising gains in assets that had done well and losses in assets that had not. If an investor owned all the assets in isolation they could choose to extract income from the assets showing gains, avoid crystallising losses and naturally rebalance the portfolio at the same time – a more effective way to generate income and tackle the potential problem of sequencing risk.
There will be more innovation in the future. Deferred annuities have been mooted, but one wonders if the lack of a product to market indicates the pessimism of consumer interest. I am sure we will also see product innovation for uncrystallised funds pension lump sums (UFPLS) and drawdown solutions that try to package a simple solution for the growing number of people who are failing or unwilling to take regulated advice – but probably not the innovation those same consumers need to achieve the best retirement outcome.
Let us go back to the earlier question of whether we actually need innovation. Even before pension freedoms were announced, Intelligent Pensions had campaigned for more people to be aware of the ‘annuity alternative’ solutions that existed. I would argue the building blocks are, and always have been, in place to help people achieve good retirement outcomes and the major challenge now is less about product innovation and more about better use and understanding of the existing product set.
