The Great Pension Revolution
Building investor confidence in an environment of change and uncertainty in pension provision
RDR, annuities, auto-enrolment, the closure of defined benefit schemes – the infrastructure of investment and pension provision is undergoing immense change. As in any period of radical disruption, there will be challenges and opportunities.
In the old regime, pensions were provided by employers and the government, with asset managers providing building blocks for portfolios built by actuaries.
In the new world, individuals will largely be responsible for providing for themselves, at a time when extended longevity is greatly increasing the costs and complexity of later life.
A new video, The Best Advice, explores the implications of this change for financial advisors and investment providers. In the video, industry heavy-weights Keith Richards, chief executive of the Personal Finance Society, Richard Romer-Lee, managing director of Square Mile Investment Consulting and Research, and John Ventre, head of multi-asset investment at Old Mutual Global Investors, discuss a number of issues critical to the future we now confront –
- The regulator, the Financial Conduct Authority, expects advisers and investment professionals to focus their efforts on providing positive outcomes for the client
- The cost of annuity-type solutions is prohibitive to all but the very wealthy, with a £20,000 inflation protected annuity costing around £1 million
- Investment providers need to restructure their offerings, with much more emphasis on meeting client needs, and creating products capable of managing the risks of prolonged later life, including inflation, income security and risk of ruin
- As the risks of financing later life increase, the value of good advice also increases, while the length of the ‘advice lifespan’ extends and the pool of potential clients broadens
Keith Richards commented: “The impact of change is profound and now requires the market to respond accordingly. From effective guidance and advice, through to the innovation of product solutions, there is a real opportunity for collaboration across the market supported by politicians and regulators to ensure better consumer outcomes.”
Richard Romer-Lee commented: "This time it really is different. The shift of responsibility for savings to the individual is not properly understood by the public. There is still an expectation that the state will be there to pick up the pieces. But it won't be beyond subsistence levels."
John Ventre commented: “It has been my view for many years that the fund management industry needs to create products that meet client needs, rather than try to bend client needs to what we do. Outcome-based investment funds have proven their value and will be an important part of the future in providing later life solutions.”