BlackRock is working to "repurpose" its range of target date funds and introduce an income drawdown product in response to the liberalisation of defined contribution (DC) regulation.
The asset manager wants to develop its LifePath fund range ahead of the changes, announced in this year's Budget, which will see fewer retirees purchasing annuities at retirement.
It is also planning to introduce an individual drawdown option, which members of trust-based DC schemes could transfer into on retirement.
Head of UK DC Paul Bucksey told PA's sister title Professional Pensions there was "plenty of work going on" to build on the firm's existing capabilities in preparation for next April.
He said: "We are putting a lot of thought into how some of our existing investment funds in not just mutual funds but also exchange traded funds (ETFs) and what we already have in the estate around absolute return bond funds, for example, could and should be putting in the shop window from a liberalisation of pensions perspective."
BlackRock also intends to "repurpose" its target-date fund brand LifePath, which puts investors into a position at retirement where they would buy an annuity from an independent service provider. The range will start to look more like the firm's offering in the US where annuities are less common and investors instead tend to stay invested in the market throughout their retirement and drawdown their income.
Bucksey said he is also looking to push his DC unit into new product areas such as a drawdown option to enable it to pay income to workplace members in retirement - those that don't decide to buy an annuity at all or those that decide to buy an annuity with part of their retirement pot and draw down the balance.
"Through talking to our trust-based clients we are finding there is very little appetite among trustees to offer that functionality so we are intending to offer this on an individual basis. If a member in a trust-based plan reached retirement wishing to enter a drawdown plan then we would remove them from the trust and put them into an individual account with us."
New set of clients
The move will enable BlackRock to branch out to a new set of potential clients "that don't currently invest through us and who would like to have help with managing their money into retirement."
Although Bucksey does not believe that annuities will disappear, he anticipates a great deal of growth in existing investment products such as diversified growth funds in both ‘accumulation' and ‘decumulation' phases.
He also sees a lot of interest for new products such as "single guarantees" for retirees wishing to vary their retirement income, by maximising it at the start of retirement and taking less at a later stage when they are less mobile, for example.
If an individual buys a five-year annuity, the residual amount in the pot would need to stay invested in products to give a level of return to replace what they've spent to give them five years of guaranteed income, he said.
"We fully expect to see some demand for that residual amount to be invested in the market but with a guarantee, as the worst thing that could happen at the end of a five-year annuity is that you've invested in a market that's gone down just at the point when you need to commit to more income. It will be interesting to see how those incomes will be constructed and whether those guarantees can be priced aggressively and competitively."
Bucksey said however that the April 2015 charge cap on pensions would make it a "little more difficult" to provide a guarantee that a fund would never be worth less than 100% of the amount invested.
What made financial headlines over the weekend?
Compared to 6% of 55-64 years olds
Sam Gold and Doug Abbott to take reins
Bionic advice for private clients