The anonymous poll, of 30 corporate adviser delegates, found 43 per cent were very concerned at what a rise interest rates would do to lifestyle funds, a further 43 per cent were slightly concerned and just 14 per cent said they were not concerned, with LCP partner Andy Cheseldine describing the issue as a potential time bomb.
Cheseldine said: “Are lifestyle funds a time bomb waiting to explode? The answer is ‘yes, probably’. Lifestyle has worked really well historically and from a strategic point of view it continues to work well. The real problem with lifestyle over the next couple of years is tactical. I would not have thought bond prices will stay as high as they are, or yields as low. Mind you, I said that a couple of years ago. So yes, there is a real risk there, especially when 70 per cent of people are not going to be buying an annuity. Will IGCs be able to cope with that? I think they will. But they are relatively underpowered. If they don’t like what providers are doing they only have the power to whistleblow to the FCA, or resign.”
Birthstar manager director Henry Cobbe said: “What has happened to that lifestyle legacy book since the Budget, possibly nothing. Can that be changed? I don’t really know. That for me is the big concern.
“There has always been a pathway. But we are now in a different world, where the pathway looks different. The end point isn’t an annuity, it’s drawdown. I accept some people say we need three different glide paths, one for cash, one for drawdown and one for annuity, and we ask people 10 years out what they want. I disagree. Ten years ago we hadn’t even had A-Day. Who remembers that? Legislation has changed, capital markets have changed, the end point has changed. Any decision you made about your pension in 2006 is guaranteed to have been wrong. You have to take a line of best fit, so that people who don’t open the letters, who don’t download the app, get properly looked after. And the direction of the regulation is that you have to look after the most vulnerable customer.”
