By adding an income drawdown facility to its flagship Retirement Account Scottish Widows has been able to offer customers a seamless way of moving from pension accumulation to decumulation. Iain McGowan tells Helen Morrissey how it's going
What made you decide to add the Retirement Income element to the Retirement Account? How does it work?
Scottish Widows launched Retirement Account in March 2007 and it was always our intention to follow up with the Retirement Income element. A significant proportion of Retirement Account customers expect their retirement to be a transition, rather than "a point in time" event. A key aspect of Retirement Account philosophy is to support that transition in a very streamlined manner within a single plan.
The way it works is that Retirement Account has two elements:
- The Retirement Planning element that accumulates a fund up to retirement, and
- The Retirement Income element that makes the income payments.
It is possible to move part of the fund across from Retirement Planning to Retirement Income using a process known as "designation". The key to Retirement Account is that this process can be controlled by the adviser and implemented in a very streamlined manner.
How has the addition been received?
We were always aware that the addition of Retirement Income would be the key step in completing the Retirement Account offer. This means that advisers who are already attracted by the design principles of Retirement Account have been keen to see the finished version.
In the early weeks of Retirement Income, we promoted our web services to advisers as a means of delivering Retirement Income in a simple and streamlined manner. Advisers who have used this service since launch have been highly impressed.
What have been the main challenges you encountered when developing the Retirement Income element?
We spent almost a year developing and delivering Retirement Income - and it has represented a significant investment. We challenged ourselves throughout the process to deliver key functionality more quickly and at lower cost. However we have been unwilling to limit the core range of retirement options available and decided not to compromise in these areas.
What gap in the market does this product address?
There has been significant flexibility since A-Day around how customers take their pension income. The designation process I mentioned earlier means that it is possible to build up pension income over time and supplement it with a proportion of the available tax free cash. Other providers have made this possible through a variety of mechanisms. What is different though with Retirement Account is that it can be achieved in a very streamlined manner within a single plan. In particular, there is no disturbance to the assets within the plan, which are instead seamlessly reallocated from the Retirement Planning to the Retirement Income portion.
How does it help the adviser to add value to their clients?
Not only is retirement income a larger growing market, it is arguably the area where advisers can add most value. In the retirement planning phase, the central message for many clients is to save as much as they can reasonably afford. By contrast, there is no single solution that works for every client in providing an income in retirement.
This means there is a valuable role for the adviser to play in understanding their client's retirement income needs and finding the most tax efficient way to achieve this, taking into account the client's circumstances, including attitude to investment risk. It is important that this solution is not restricted and therefore compromised by lack of flexibility within the product - and indeed the product design has a role to play in making the whole process more straightforward. These are areas where Retirement Account adds value.
Are there any plans to develop this product further?
The Retirement Income element completes the development of Retirement Account as originally envisaged. That said, Retirement Account is Scottish Widows flagship retirement product and we will continue to invest in it on an ongoing basis. Now that we've launched Retirement Income, we will take feedback from advisers and clients to understand where we might enhance the product further.
How does the Retirement Account aid transparency?
Transparency is all about separating the cost of the wrapper, its underlying investment and advice. A transparent product is one that clearly separates these elements and allows the customer to understand the value delivered by each of them individually. It is also important that each of the three elements is independent of the others, for example to avoid a situation where investment choice is compromised because the cost of the wrapper changes.
One very important example where Retirement Account is different from traditional SIPPs is that we provide a full pre-sale benefit projection demonstrating the total effect of charges. This allows much easier comparison with the stakeholder charging structure, which as we know remains a regulatory requirement.
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