The changes announced in this year’s Budget, precipitated a near 38% drop in annuity sales in the subsequent quarter. In Q1, 74,270 annuities were sold at a value of £2.47bn, compared to just 46,368 – totalling £1.79bn – being traded in Q2 and advisory firms are contemplating the best way to provide a sustainable level of retirement income to clients.
Of the 95 respondents in the survey, 53% said the pension changes have created a gap in the market that requires new products.
Conversely, 39% held the view that there are already a sufficient number of products and it is simply a matter of being more thorough when matching them to a client’s needs; the other 8% didn’t venture an opinion either way.
The survey also revealed that more advisers think their clients are likely to purchase an annuity before the rules take effect in April 2015 than after.
Jon Everill, FundsNetwork’s head of advisory services, said: “Come April 2015, our research indicates that advisers don’t view annuities as a ‘core’ product for a large proportion of their clients entering retirement.”
An important role to play
Meanwhile, Jonathan Lipkin, director of public policy at the IMA, said: “Irrespective of whether new products are developed or not, we believe that a guaranteed income is still important to many consumers especially to cover all their essential expenses.
“On that basis, we believe that annuities or derivatives thereof, will still have an important role to play in the retirement landscape.”
Threadneedle and Liontrust have already launched multi-asset funds in direct response to the rule changes and the sector is expects that number to grow. But, while the fate of annuities continues to be deliberated, the need for a sustainable and growing income in retirement has never been higher.
Jasper Barens, head of UK funds at J.P. Morgan Asset Management, believes that the new pension freedoms represent a window of opportunity for both investors and savers.
He points out that in the last seven years annual council taxes have risen by 11%, electricity bills by 30%, and combined average food and car bills seeing an increase of 60%. Under the unprecedented low interest rates, a £10,000 investment a decade ago would drift more than £2,000 behind the ever-increasing living costs.
“Thanks to years of low interest rates and rising income needs, many people face a real danger of falling short of their long-term financial goals, or quite simply running out of money in retirement,” he wrote. “Few income-seeking investors can easily absorb this kind of drop in interest payments, so they need to look elsewhere to make up for the loss.
“The pension reforms of 2014 represent a huge step towards helping savers to maximise their pension pots—and enjoy the kind of retirement they’ve worked hard to achieve.”
Jeremy Roberts, BlackRock’s head of UK retail sales, said that to keep attracting clients firms must match the needs of their clients.
“We are in a new world of investments, but there remains too much focus on short term performance,” he said. “We see performance tables that quote performance over one month, three months, six months, 12 months, but the end customer doesn’t have that short-term an investment horizon, they are looking 10, 12 years ahead. We need to align products and solutions with what the client wants.”
