The route to retirement has evolved significantly, but will using a combination of retirement products become the norm? Jenna Towler finds out...
This might not be news to advisers, but more Bentleys were sold in the UK last year than RPI inflation-linked annuities.
But that doesn't mean advisers can afford to ignore the rather unpopular product or fail to run the numbers and present it clients approaching retirement.
Thinking back a few years the choices for retirees were straight forward - you finish work completely, taking your carriage clock for long service, and get a traditional life time annuity.
Will combining retirement products become the norm?
But as the decumulation market has developed, so have the number of choices available to retirees.
Lifetime annuities are still the major player, but inflation-linked annuities and fixed annuities have all made an appearance, as have capped drawdown and flexible drawdown. Scheme pension deserves a mention here too.
It can be quite a challenge to present all the options, in enough detail, to clients while keeping their full attention and comprehension, according to provider LV=.
To help advisers get across the myriad of options available to them, including the option to phase their retirement, the provider has come up with a process for advisers to follow, called Hopscotch.
It gives advisers a matrix to work through with clients which links the type of products available to the inflation, investment, annuity rate, longevity and change risks associated with each of them.
LV= retirement solutions head of distribution Steve Lewis said: "It is designed to help the adviser demonstrate the value of advice, rather than tell the adviser how to give advice. Most experienced advisers cover these aspects but sometimes it is putting them into a framework or a model helps the consumer understand the value of advice."
Phone a friend
Speaking at a roundtable in London, Lewis said while the provider itself did not see a huge number of blended solutions in decumulation but it was likely advisers were moving towards writing more combined business.
"We think choice is good. Advisers have a crucial part to play in ensuring that retirees structure their income in a way that provides them with the flexibility that best suits their retirement needs.
"If you want a high level of guarantee but would like some investment exposure, why not phone a friend and do a 50/50 with level lifetime annuity and investment linked annuity?
"Why not do half and half? One of the things we are looking closely at is doing an 80/20 plan. Why don't we have a scale where you decide what level of guarantee you like and what proportion of risk are you prepared to take? Risk is not necessarily a bad thing."
LV= currently offers both products and is developing its thinking in terms of portfolio solutions, he added.
"We are not a fan of ‘third way' as an expression but why not mix and match for a client who have several hundred thousand in their pension pot using two or three different solutions? For someone who has less than £100,000 in their pension pot why wouldn't they consider 80% in lifetime annuity and 20% in investment linked annuity?"
Richings Financial Management principle and managing director Clive Ridge said blended retirement solutions would fit with his business model
"Historically there were only annuities, going back a few years ago. Drawdown was introduced, and there were two extremes." He said. "We do a lot of risk-rated portfolio planning and this is bringing that into the post-retirement space."
Ridge also said non-advised annuity sales should come with a "health warning".
"When you get to the point when you are moving from accumulation to decumulation there are huge decisions to be made.
"The individual has spent 25 to 30 years accumulating that fund; you may have been with them during that period. Not to be with them when they are about to make that decision is foolhardy. Personally to be making a telephone call at that time should come with a health warning."
However, Foster Denovo financial adviser Grace Agnew said lack of client knowledge and totality of risk aversion were still big issues for advisers.
"One of the issues I have with clients coming up to retirement is that they do not want to take any risk whatsoever, they do not want to be in the investment market, they are scared of it falling.
"Even inflation risk - when you look at the figures you are looking at about 15 years to make up the difference between and inflation-linked annuity and a standard. They don't see themselves living 15 years, they think immediate gratification."
She added: "You can explain to them but they might not trust the market, or insurance companies, they just want to know what they are getting. All the paperwork they get, it just confuses them even more. Advisers simplify and educate them.
"The problem is that when clients get the retirement they think they don't have an option. I do not think a lot of people are aware, they don't see the value in changing or in the enhanced annuity rate."
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