PENSIONS SPECIAL, PART 1: ANNUITIES

Transcription

1 ADVISER KNOWHOW THE WEEKLY TV PROGRAMME FOR ADVISERS BY ADVISERS PENSIONS SPECIAL, PART 1: ANNUITIES In the first episode of a two part pensions special, we look at annuities and drawdown and ask how you decide what is the best value for clients. Is drawdown suitable for more people than is often thought, or an accident waiting to happen? What is the impact of buying annuities without financial advice? KEY POINTS 1 Drawdown needs reform 2 Savers get a bad deal without advice 3 Still major barriers to good retirement outcomes

2 KEY POINTS KEY POINTS FOR THIS WEEK S EPISODE FEATURING AN INTERVIEW WITH INDEPENDENT PENSIONS EXPERT ROS ALTMANN DRAWDOWN NEEDS REFORM The 20,000 minimum income requirement is too low given inflation People with AVCs or final salary schemes should leave small pots in drawdown New hybrid annuity-drawdown products are needed Most people assume you need at least 50, ,000 to go into drawdown Those who do nothing could get a better annuity rate if they later get ill SAVERS GET A BAD DEAL WITHOUT ADVICE It can be more expensive for a customer to buy direct form a broker than to receive whole of market advice Advisers disclosing upfront their charges puts off customers It can be unprofitable for advisers to advise on small pots Supermarkets could soon offer a simplified annuity advice service Over simplification could end with too many people getting it wrong Annuity purchase is a one-off decision Self-servers usually select a single life annuity STILL MAJOR BARRIERS TO GOOD RETIREMENT OUTCOMES Low base interest rates and a low gilt yield environment keeps annuity rates and GAD rate low Fundamentally, people haven t saved enough and their pension pots are too small The biggest barrier to good annuity income is lack of advice on savings

3 PROGRAMME TRANSCRIPT We ve had flexible drawdown come out in the last couple of years and I think it s a bit of an accident waiting to happen. David Thomas, Chadney Bulgin Yet again, it s been a big year for pensions. Auto-enrolment is working its way across UK business, while the pensions industry itself has come under fire for high charges and a lack of cheap advice. To discuss these issues, and more, I m joined in the studio by independent pensions expert, Ros Altmann. But first, let s hear what advisers have to say. VOX POPS Annuities and drawdown: Is more reform needed? Keith Churchhouse, Chapters Financial We are going to remain in a low base rate, low yield environment, and the reality is that people are suffering from low annuity rates and low GAD rates. So, from that point of view, more reform has to come in. How they will do it, I don t know because it really is a money spinner for the government and the reality is that they are not likely to lose that cash-flow. David Thomas, Chadney Bulgin We ve had flexible drawdown come out in the last couple of years and I think it s a bit of an accident waiting to happen. The level has been set at 20,000 and, in today s money, that s not very much. In theory, someone could take all of the rest of their money out of their drawdown pot today and leave their 20,000 income. Will that be sufficient in five, ten, twenty years? Almost certainly not, in my opinion. David Prior, Newell Palmer & Associates On the whole I don t think that there s a huge amount of reform needed when it comes to annuities and drawdown. It s certainly a lot better than it was twenty years ago. What are the biggest barriers to a decent retirement income? Keith Churchhouse I think that the biggest barrier has to be the fact that people don t save enough. It s as simple as that. David Thomas Well, currently, annuity rates are probably the biggest barrier by a long chalk, because that drives both GAD rates and annuities themselves. David Prior, Newell Palmer & Associates The biggest barriers to people having a decent retirement income I feel is the fact that people aren t getting the advice any more to save. Are advisers doing enough to make annuity and drawdown advice accessible? Keith Churchhouse Probably not, dependent on profitability. But then the reality is, that for smaller pots, will they address that issue? Probably not. Maybe the internet will do that, maybe we will find third sector parties, such as supermarkets, who have high levels of distribution, moving in to address a simple annuity service. David Prior It s a very complex arena, because if someone buys the wrong annuity, they re stuck with it for the rest of their lives. So you have to make sure that you get it right. It s not like putting them into the wrong pension plan and you can transfer it later. With an annuity, you ve bought it. That s it. So it is a complex area and there s a danger that if you try and simplify it too much, and just let people make their own decisions through an online portal, too many people will get it wrong. END OF VOX POPS Will Robins, Features Editor, Citywire If you re reaching retirement, and you don t feel that you can afford advice, what happens? Do you just buy a single life annuity? Or is there anywhere else that you re being pushed towards? Ros Altmann, Independent pensions expert Well, the thing that worries me most is that, right now, it can be more expensive to buy direct from a broker than it can be to go with full, whole of market, independent advice. Because of the RDR, where advisers have to tell you up front how much they are going to charge you, a lot of customers may get put off, or advisers would feel that customers are just not going to pay. But when they go online to a broker, and select for themselves usually a single life level annuity, and they come to the point of purchasing it, they will be

4 the thing that worries me most is that, right now, it can be more expensive to buy direct from a broker than it can be to go with full, whole of market, independent advice Ros Altmann, Independent pensions expert faced with a commission charge that can still be charged, not by advisers, but by a self-service, online broker, that could be higher than the advice charge that the adviser would have charged them in the first place. Will Robins Buying an annuity is not your only option, there s drawdown as well. If you go into that level, it s not just buying the right shape or kind of annuity, but looking at all of the other options available as well. Ros Altmann I think that there is a whole new layer that needs to be considered, which currently is often not being considered. Even if you ve got a small pension pot, or perhaps especially if you ve got a small pension pot, the do nothing option is often not even considered. If your small pension pot is an AVC or an addition to other types of pension, for example, employer final salary pensions, then 10,000 converted into an annuity is probably not going to be much use to you at age 65. You d be better off, in many cases, just leaving it there. You ll get investment growth, you might get a bit of protection against inflation and if you get ill you can buy much better later. If you ve got a big pension fund, then you can start considering drawdown options. I would love to see new products come in which are a kind of hybrid between annuities and drawdown which could also suit small pots. So that you could get your tax free cash out, perhaps, if you want to. But, at the moment, you ve got drawdown, which is supposed to only apply to big pots, usually the absolute minimum is considered to be 50,000. Very often it s 100,000. Buying an annuity with all of your money if you ve got up to 50,000 or between 50,000 and 100,000, is often going to be the wrong thing to do. But, if you don t have an adviser, you are not going to have somebody to actually talk through the options with you and the risks of buying an annuity. Will Robins Thanks very much, Ros. Ros Altmann Thanks. Will Robins You can download the cribsheet for this week s edition at citywire.co.uk/ adviserknowhow or bnymellonam.co.uk/ adviserknowhow. Or you can find the link and add your views on Twitter.

5 ADVISER KNOWHOW EPISODE SEPTEMBER 2013 HOW DO YOU DEFINE THE ROLE OF A PARAPLANNER? ADVISER KNOWHOW A PROGRAMME FOR ADVISERS BY ADVISERS Produced in association with BNY Mellon, Adviser KnowHow is a new groundbreaking programme, created specifically to help you and your business. Every week we speak directly to your peers in the industry to understand how they have addressed some of the key issues that advisers face every day of their working lives. Get involved and add your views on

6 ADVISER KNOWHOW EPISODE SEPTEMBER 2013 HOW DO YOU DEFINE THE ROLE OF A PARAPLANNER? ABOUT BNY MELLON BNY Mellon is a leading investment management and investment services company, with US$1.5 trillion assets under management and more than 47,000 employees worldwide*. The BNY Mellon asset management model encompasses the investment skills of world class specialist asset managers, including those from Insight, Newton, Standish, The Boston Company Asset Management and Walter Scott ensuring our clients benefit from market leading experts in every asset class. The multi-boutique structure encourages an entrepreneurial, focused approach to investment, ensuring our asset managers are ahead of market trends and at the forefront of investment management. Clear, independent thinking from some of the world s sharpest investment minds Contact BNY Mellon: tel: brokersupport@bnymellon.com web: Important Information TRANSCRIPT Past performance is not a guide to future performance The value of investments and the income from can fall as well as rise so you may get back less than you originally invested For Professional Clients only. This is not intended as investment advice. Any views and opinions contained in this document are those of the individual as at the date of issue, are subject to change, do not represent the views of BNY Mellon Asset Management International Limited and should not be taken as investment advice. BNY Mellon Asset Management International Limited (BNYMAMI) and its affiliates are not responsible for any subsequent investment advice given based on the information supplied. This document may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised. Unless otherwise noted, all references to total assets under management (AUM) (which are approximate), provided by The Bank of New York Mellon Corporation, are as of 30 June 2013*. AUM for The Boston Company Asset Management, EACM Advisors, Mellon Capital Management Corporation and Standish Mellon Asset Management Company LLC includes assets managed by those individual firms officers as associated persons, dual officers or employees of The Dreyfus Corporation. In addition, AUM / OUM for the following firms may include assets managed by them as non-discretionary investment manager for, or by the individual firms officers as dual officers or employees of, The Bank of New York Mellon: The Boston Company Asset Management, LLC, The Dreyfus Corporation and its BNY Mellon Cash Investment Strategies division, Mellon Capital Management Corporation, Newton Capital Management Limited (part of The Newton Group), Standish Mellon Asset Management Company LLC, and CentreSquare. AUM includes BNY Mellon Wealth Management, Ankura Capital and external data. This document should not be published in hard copy, electronic form, via the web or in any other medium accessible to the public, unless authorised by BNY Mellon Asset Management International Limited to do so. To help us continually improve our service and in the interest of security, we may monitor and/or record your telephone calls with us. This document is issued in the UK and in mainland Europe (excluding Germany) by BNY Mellon Asset Management International Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No Authorised and regulated by the Financial Conduct Authority. BNYMAMI and any other BNY Mellon entity mentioned are all ultimately owned by The Bank of New York Mellon Corporation. VIDEO Past performance is not a guide to future performance The value of investments and the income from can fall as well as rise so you may get back less than you originally invested For Professional Clients only. This is not intended as investment advice. Any views and opinions contained therein are those of the individual as at the date of issue, are subject to change, do not represent the views of BNY Mellon Asset Management International Limited and should not be taken as investment advice. BNY Mellon Asset Management International Limited (BNYMAMI) and its affiliates are not responsible for any subsequent investment advice given based on the information supplied. This video may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorised. This video is issued in the UK and in mainland Europe (excluding Germany) by BNYMAMI, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No Authorised and regulated by the Financial Conduct Authority. CP (6M). *As at June 30, 2013