Advisers can help retirees choose the all-important first step of their retirement planning process and then be an ongoing figure of support throughout retirement, says Kim Lerche-Thomsen.
Retirement planning has always been a complicated business but even so, as I look back on the past decade and compare it with today’s retirement lending market, it is remarkable to see the array of options on offer for today’s retirees. Though I have spent much of my career striving to create changes within the lifetime annuity sector, I never imagined it would undergo the revolution I have seen over the past 10 years.
The emergence of pension freedom has opened up so many options for the benefit of retirees, but it has also radically increased the complexity of the market. Clients can now do exactly as they please with their pension – they have the option to buy an income, cash in as much or as little as they would like, or give it to their children. The old system of retirees simply sleepwalking straight into a lifetime annuity without understanding the potential consequences has disappeared, and this can only be a good thing.
A lifetime annuity is portrayed as a ‘one size fits all’ product while consumers are not all the same and people need greater control over their financial options at retirement. A lifetime annuity is still a good insurance product for later on in retirement, but it needs to be taken out at the right time. In reality, they are best suited to someone in their 80s, an individual with a very short life expectancy, or a younger retiree who is in very poor health.
The landscape of the annuity market has changed dramatically even in the past year and most recently we saw Prudential withdraw completely from the open lifetime annuity market. So, while the flexibility we are seeing in the pension world is greater than ever, it is ironic to see the number of products on offer for retirees is actually falling, as major players such as Prudential, Standard Life and LV= leave the market.
Rock and a hard place
As a result, retirees today find themselves in something of a rock-and-a-hard-place scenario. On the one hand, they have the unattractive option of low-level returns from orthodox lifetime annuity plans and an ever-shrinking market of providers. On the other, they have an increasingly uncertain investment market where they may be forced to take huge risks in order to generate the finances they need to enjoy their retirement.
To navigate through this increasingly complex retirement planning landscape, retirees need to draw on the expertise of independent financial advisers. Advisers can help retirees choose the all-important first step of their retirement planning process and can then be an ongoing figure of support throughout retirement.
This first step is crucial as the market continues to become increasingly complex, with some options narrowing and others opening up. Clients can often go into retirement with little or no knowledge of what their retirement options are.
As an example, retirees may be unaware of options such as fixed-term drawdown, flexi-access drawdown and how these compare to conventional annuities, so the help of experts is exactly what is needed to draw attention to these plans and the other solutions available. This was one of the principle drivers of our recent ‘Offer More Options’ campaign, and it is crucial to the health of our industry.
In order to serve the customer properly, the industry must continue to innovate in terms of product offering, and give retirees the security and freedom they need during what are supposed to be enjoyable years. Guidance is crucial in ensuring clients have the right plan at the right time and ensure an enjoyable retirement.
Kim Lerche-Thomsen is founder and CEO of Primetime Retirement