Klare Baldwin, head of marketing at FundsNetwork, says the pensions industry has entered a revolutionary era, and long may it continue
These days we're spoilt for choice in almost every walk of life - be it how you like your coffee served, what colour and style you would like your designer handbag/wallet in (which is definitely no bad thing), or even the vast number of funds you can choose from to build an investment portfolio.
However, choice hasn't always been something we have had the luxury of, particularly when it comes to pensions and investments.
For those of us who have been in the industry long enough, there was a time when pension product choice was extremely limited, not to mention polarised. At one end of the spectrum, there was the costly self-invested personal pension (SIPP) and at the other end, choice (or lack of) was restricted to insured products - including a selection of life office managed funds, maybe a handful of external fund links and with-profits funds.
Viva la revolution!
Fast forward several years and the market has without question moved on. These days, pensions offer a wide range of investments and moreover are typically viewed as just one component of a client's holistic financial plan as opposed to an isolated tax wrapper.
Of course some things will never change, and there remains (and always will remain!) debate among the professional community when it comes to subjects such as whether asset allocation under the pension should be the same as that in ISA and collective portfolios.
However, with the on-going march in popularity of collective investment-based pensions delivered through platforms, it looks as if the old adage of ‘pensions are different' might finally be laid to rest - well, at least outside the employer-sponsored part of the market - and we could increasingly see a more uniform approach to how client's individual wrappers are managed.
If we take a look at things from a product designer's perspective, a pension must support the full spectrum of advisory propositions, from those operating discretionary services right through to those recommending multi-asset investment solutions as part of a managed solution.
Over the past decade, we have also witnessed a quiet revolution in the pricing of pensions. Let's rewind back to when stakeholder pensions were first introduced; in those days, most manufacturers claimed that it was impossible for pensions to be priced at the 1% per year level and operate efficiently. This may have been true of the early stage accumulation market, where high commissions were needed to cover the fixed costs of initial advice.
However, the evolution of the market over the last ten years or so has proved the naysayers wrong and for later stage clients that are consolidating their pensions, this pricing level is realistically achievable - though with that said, this will depend largely upon the level and nature of the service advisers provide to their clients.
Falling into place
We are now it seems, at the point where the last piece in the puzzle is finally falling into place.
Following increased pressure from a number of advisory firms, the Financial Conduct Authority and HM Revenue & Customs (HMRC) have set the wheels in motion to complete the transition of the pension from a packaged product to a set of building blocks for advisers to shape into a suitable solution for their clients (tax structure, investment proposition, fee structure, etc).
As a result we are starting to see the emergence of pensions being built on a truly bottom up basis. These ‘new world' pensions consist of clean share classes, straightforward administration costs and subject to the HMRC rules, are operated with the simplicity of an ISA.
These developments can only be a positive thing, especially for the consolidation and decumulation market in which most advisers we work with operate - although the old mass market for regular savings is now almost exclusively the province of employer-sponsored schemes and NEST.
So then, it appears the industry has entered a revolutionary new era of the ‘Retirement ISA' with monetary contribution limits, no guarantees, wide fund choice and transparent, competitive pricing - and long may this revolution continue.
‘Promising lead’ or ‘Back to the lab’?
PA360 2019 revisited
Complaints triple in past year
Our weekly heads-up for advisers
Tracking real performance