Helen Morrissey takes a look through the latest Retirement Planner Inquiry and asks what challenges retirement advisers will be facing in the coming year
Financial advisers are facing a challenging year as they get to grips with RDR and developing their business proposition.
It is expected we will see more advisers moving into retirement planning over the coming years as a result of increasing longevity but what further challenges does this present?
In this month’s Retirement Planner Inquiry we asked advisers to tell us what challenges they would be facing throughout 2013 and what areas of retirement planning they would be devoting more time to.
As usual the survey was sent by email to the Retirement Planner readership with 140 people taking part.
The first question we asked our survey participants was whether they advised on retirement planning. The vast majority (72%) said they did.
We then went on to gather industry opinion as to some of the key challenges they were likely to be facing. In the recent Autumn statement the Chancellor made several changes in retirement planning.
Lifetime and annual allowances were reduced while the maximum income that can be taken from capped drawdown has been increased to 120% maximum GAD. These changes are just a taster of the rapid evolution of the retirement market in recent years.
Even as Retirement Planner went to press last week the industry was getting to grips with the nitty gritty of government plans to introduce a flat rate State Pension.
Working in an area that changes so quickly is proving challenging for advisers as clients feel unable to make long-term decisions while the landscape is so changeable.
Over half (53%) of survey participants said the rate of change affected their clients’ retirement planning to a large extent. A further 43% said it affected clients to a small extent. Only 4% of those who answered the question said the rate of change did not affect their clients at all.
One of the more controversial changes to come out of the Autumn Statement was the increase in maximum income that can be taken from capped drawdown. The move came as a result of industry pressure as a mixture of volatile investment markets and low gilt yields meant many clients faced a steep decline in income when they came to triennial reviews with their advisers.
SIPP provider AJ Bell lobbied the Treasury to increase the maximum income to be taken from capped drawdown from the current level of 100% maximum GAD to 120% maximum GAD. Clients affected were also encouraged to write to their MPs about the situation.
However, while the increase in maximum income has been welcomed by many, there are others who believe the change is not the right thing to do. They argue that if clients are encouraged to take the maximum then they risk depleting the capital value of their fund.
Given this controversy we asked survey participants if they thought the changes would benefit clients. A massive 92% of those who took part in the survey said they did think the changes would benefit clients.
One participant said: “It will help clients, notably those that have just had the triple whammy at their latest GAD review of the lower 2011 GAD table rates, restriction from 120% to 100% of GAD and historically low annuity rates partly caused by QE... all out of the client’s control!”
However, some had a more mixed response. One participant said: “Possibly but it does introduce more pressure on investment performance if capital erosion is to be avoided which in turn may lead clients to adopt an overly risky profile.” Another said: “Yes, but it’s a short-term fix.” The remaining responses were either an outright no (6%) while 1% recorded either a mixed or no comment response.
So it is clear retirement planning is undergoing great change and advisers will need to work hard to keep up to date with change. However, in addition to this what other major challenges are advisers facing in 2013?
Perhaps unsurprisingly the major challenge highlighted by those taking part in the survey was developing an RDR ready business proposition.
Over 40% (41%) highlighted this option when asked to name key challenges. Pension reform was also mentioned by almost a third of advisers (29%) while communicating with clients was also uppermost in adviser’s minds with 19% mentioning this.
Over ten per cent (11%) also expressed concern as to the lack of innovative markets currently available to meet their clients’ retirement planning needs.
However, where there are challenges there are also opportunities for growth. When we asked advisers to tell us where they see the key growth areas for their business there were many options highlighted. Annuities came out top with 18% of participants highlighting them as a key growth area. They were closely followed by investments which were highlighted by 16%.
The opportunities for advice brought about by auto-enrolment were not lost on advisers with 15% saying they see this as a key area of growth. Income drawdown is also proving popular with 14% of participants citing it as a key growth area. Other areas highlighted included SIPP and SSAS (12%) and estate planning (7%.)
As 2013 gets under way it is clear advisers have a busy time ahead. As yet we do not know if 2013 will be characterised by the same degree of reform of previous years but advisers will certainly have their hands full with RDR, auto-enrolment and keeping clients up to date with the latest pension reform.
It will be interesting to see how advisers adapt during 2013 and how the retirement income market evolves as a result.
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