Pension savers, their advisers and even Government it seems, have grown weary of traditional personal pension plans, with their high associated costs and outdated annuity options, where the high profitability margins were much publicised.
In the early 2000s there was a great deal of disillusionment among pension investors about the perceived inability of their pension funds to cope with the effect of equity markets in freefall.
This disenchantment with the old-style personal pension model led to the rise and subsequent boom in Self-Invested Personal Pension (SIPP) sales and pension drawdown options, which has continued unabated since.
Investment flexibility
The SIPP and its overseas counterpart, the Qualifying Recognised Overseas Pension Scheme (QROPS) started life as pension schemes used by relatively sophisticated savers.
The freedoms offered by utilising these vehicles initially attracted business owners such as company directors and generally those who had a higher net worth due to the increased associated fees.
Over the years, however, membership of the UK SIPP market has become a much wider demographic as watered down versions of the product became mass market and that has led to the line between a SIPP and traditional personal pension becoming blurred.
Although QROPS have been around a much shorter time, the same change has also been taking place.
The rise of platform-based pensions allows members to take control of their own retirement in a way they never could before.
Savers still have access to a large universe of good quality mutual funds but performance objectives can be met by also having access to exchange trade funds (ETFs), individual equities on multiple exchanges and other more esoteric instruments.
All this individual choice, coupled with an increasing preference for the wide range of discretionary fund managers (DFMs) and model portfolios, have made platforms without question the most efficient and engaging way to manage pension savings.
Platforms enable members and their advisers to have access to unrivalled tools, performance data backed up by powerful technology and the economies of scale in order to achieve truly individual retirement investment objectives.
Budget reforms
This evolution in technology and access at a low cost has made an enormous difference to the attractiveness of pension savings, however, pension savings are still seen as being a standalone part of an individual’s wealth, and therefore it doesn’t naturally follow that savers will take a holistic view of their savings objectives.
Recently announced reforms mean that from April 2015, pension savers will be able to access up to 100% of their retirement fund at normal retirement date.
This increased flexibility will force members to consider their pensions and other savings together as one overall financial objective.
With planning pension withdrawal options, members should be able to avoid the 55% death after retirement tax charge entirely.
A wrap platform ensures the pension (albeit a SIPP or QROPS) is merely a ‘wrapper’ on the platform and the platform is the first and overall consideration.
Pension savers will need the ability to move monies between personal and pension accounts to save, invest, provide income; and lump sums.
Platforms provide this functionality; allowing members to amalgamate their entire financial situation into one consolidated picture while still giving savers and their advisers the ability to manage the individual aspects of each.
This, along with economy of scale, will provide not just a more efficient way of transacting but is likely also to drive the cost of retirement planning and investments down.
The pension revolution is under way and every aspect of retirement planning will need to be rethought.
Savers and advisers can be confident, however, that by harnessing platform technology they can fully take advantage of the new freedoms and flexibility on offer as well as the significant reduction in costs of pensions through a platform, SIPP and QROPS.
