The report, called “Flexibility in Retirement – Planning for change”, sponsored by MetLife, said developments to watch out for include pension products that provide a broader spread of assets for longer term capital growth, financial modelling tools to accommodate different combinations of saving and working longer, new products that deliver retirement income while also preserving capital, and increased use of guarantees.
Ros Altman said in a foreword that “it is a really exciting outlook for financial services which can potentially deliver a more prosperous later life for millions of people.”
Care funding annuities, for example, could be designed to provide some insurance that would pay out much more income in later life, if people became very ill. In this product scenario one fifth of the pension money could fund long-term care insurance, using a deferred annuity that would only start if the customer lived beyond a particular age, say 85 or 90 – and then pays a higher sum if long-term care is required.
Financial advisers were asked what products customers might want and they suggested low cost drawdown products, high income fund specifically for retirement, flexible annuities with a surrender value and more emphasis on guarantees for either income or capital.
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Altman also called for a ‘National Wealth Service’ of independent retirement guidance, integrated into auto-enrolment, with regulatory changes to boost professional financial advice.
There was also research contained in the report which showed how the Spring UK Budget had massively boosted interest in pensions with one in four workers, equivalent to 7.3m people, who are planning to start or increase retirement saving as a result.
Just over 70% of workers said they would consider working past state pension age, in order to achieve a higher retirement income, 36% said they did not know when they would retire, and only 20% believed they were saving enough for retirement.
Other points highlighted in the report included:
- A crucial issue will be managing the liquidity and flexibility implications of not annuitising while protecting people against more of the retirement risks they will face.
- The prime determinants of higher later life income are continuing to work and having a good private pension – so employers have an important role in facilitating later life working.
- In the 1950s people generally worked for 50 years and were retired for 10, so retirement lasted 20% of working life. Now it is more like 50%.
- A National Retirement Guidance Network – ultimately leading on to a National Wealth Service – could form the foundation of a revolution in guidance and advice to address the key needs for later life income and help people plan their financial future.
- This could be integrated into the national programme of auto-enrolment, ensuring that all workers receive information about financial planning, which needs to be an ongoing process, rather than just than a one-off exercise.
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There is a massive opportunity to be grasped by financial advisers and the financial advice industry for those already close to pension age.
